Nearly three million Canadians are self-employed. Others work for larger companies from home. In many cases, their homes are their workplaces.
Aside from the convenience of being able to show up at the office in your housecoat and slippers, there are many tax breaks available to those who work from home. Of course, business-related expenses are fully deductible. Many other deductions are a portion of expenses homeowners typically incur anyway, but claiming the right portion is critical if you don’t want to run afoul of the Canada Revenue Agency.
In theory, you need to determine what portion of your home is used for your business in terms of square feet, but you can make it simple using the one-fifth rule, which allows you to claim one-fifth of certain household expenses. Here’s how it breaks down:
Employees: If your employer requires you to have an office at home and it is your principal place of work, or you use your home for regularly meeting clients/customers, then you can claim expenses related to your home office. Deductible expenses include a portion of utilities, repairs, insurance (but do not include mortgage interest or property taxes).
Self-employed: Can deduct a portion of home expenses if it is your principal place of business or you regularly meet clients/customers there. You deduct the same things as listed for employees above, but can add a portion of mortgage interest and property taxes to that list.
One note of caution: If you deduct expenses related to permanent changes, such as renovations or an addition, you could lose the principal residence status on your part of your home and lose a portion of your principal residence capital gains exemption.