May 15, 2019
Personal Investor: Tax benefits of being your own boss
By Dale Jackson
Personal Investor: Self-employed tax deadline looming
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One advantage to being your own boss is a later tax filing deadline. The deadline for Canadians employed by someone else came and went, but the self-employed have until June 17 to submit their returns to the Canada Revenue Agency (CRA).
According to tax software provider Intuit Canada, one in 10 Canadians are self-employed, but in this gig economy, 45 per cent of Canada's workforce is expected to generate self-employed income in the next decade – either entirely or through side jobs.
Being your own boss can be stressful but it can also provide some pretty good tax breaks. If you run a business from home it’s important to establish the portion of your home dedicated to the business. The CRA officially bases that on square footage but tax experts will often suggest the one-fifth rule, meaning one-fifth of the total floor space in your home is used for business purposes.
Using the one-fifth rule makes calculating office expenses simple: 20 per cent of your total home expenses.
If your home is your principal place of business or you regularly meet clients or customers there, those expenses can include a portion of utilities, repairs, insurance, mortgage interest and property taxes.
Deducting one-fifth of repairs and maintenance on a home should be alright with the CRA but you could run into trouble trying to deduct home renovations if it is your principal residence. Here’s why: gains made on the value of your principal resident are not taxed when the house is sold, but half of gains made on the value of a business are taxed when it is sold. The CRA could consider one-fifth of your house a business and you could be subject to taxation on one-fifth of the capital gains. The line between repairs and renovations can be fine, so be sure to check with a tax expert.
If your business requires the use of your vehicle, you can also deduct a portion of expenses including gas and oil, repairs, maintenance (including car washes), insurance, licence fees, capital cost allowance (depreciation), auto club dues and loan interest.
