Many Canadians have a place reserve in a den or family room where they can do some office work. With some type of computer, printer, desk, and phone, it could even look like an office. But a taxpayer’s ability to deduct expenses for an individual workspace depends on whether the Canada Revenue Agency considers it to be a legitimate office at home.
So, it’s really worth exploring the problem with a tax professional to see if your office at home qualifies. The first thing one notices after reading the tax rules is that the range of deductible expenses varies depending on the type of worker you are. If you’re a worker, your deductions are much more limited than if you’re self-employed.
Saying you want to work from home isn’t enough to earn the to deduct home office expenses. As a worker, you can only deduct office expenditures if your company requires one to maintain a working office at home. What’s new this tax year? Your company must sign a T2200 federal form that certifies this. If the business won’t sign, you can’t claim. The workspace must be where you “principally perform the duties of employment.” means more than 50 per cent of that time period Principally.
Failing the first condition, the workspace must be used and then earn employment income, and you must use it on a regular and continuing basis to meet customers or clients. Evelyn Jacks, president of Winnipeg-based Knowledge Bureau. Due to the stringent conditions, most employees won’t be able to qualify. If you claim home office expenses, you may even have the ability to claim a GST/HST discount for the portion of your home expenditures due to the work activity.
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To meet the criteria, your company must be a GST/HST registrant apart from a listed lender such as a bank, insurance company or brokerage company. For those employees who do have the ability to satisfy the guidelines, the set of what can and can’t be deducted is quite specific. Essentially, employees can only deduct a share of the cost of keeping the workspace, like the cost of heating, electricity, minor repairs, and cleaning.
Victoria-based chartered accountant James Gustafson. A percentage of rental payments can be deducted also. But if you own the true home, mortgage interest, property taxes, home insurance, and capital cost allowances can’t be claimed. Salespeople on commission rate are, however, permitted to deduct a prorated portion of their home insurance costs and property taxes. If you’re self-employed, the number of available office at home deductions expands dramatically. Another business phone collection would be completely deductible.
Self-employed workers are also able to declare capital cost allowance (also called depreciation) on the home-office part of their house. But experts say they shouldn’t. Gena Katz, professional director at Ernst & Young. How safe is your CRA data? Furthermore, to all the above-mentioned conditions that must be met, there are always a couple of general rules about office at home expense claims.
For one thing, they can’t be utilized to create or increase a loss from employment. But eligible expenses that can not be claimed twelve months can be carried forward to future years, as long as you still meet the criteria to claim home office expenses. The CRA’s T2125 form – Statement of Business or Professional Activities – must be filled out to claim these expenses. Page 3 of the form deals with the computation of what are called business-use-of-home expenses.
Most tax software packages will let taxpayers declare home office expenses, even if you want to upgrade to a far more expensive version that caters specifically to the self-employed or small business owners. Working from home can lead to big tax cost savings, but the rules are tight and the paperwork can be formidable. It may be smart for first-time claimants to seek the help of a professional.
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