Reducing taxable income is a goal of many companies. One way to do this is by benefiting from business use of home expenses. The best part is that it will also help you reduce the company costs.
If you want to know more about writing off your home for business in Canada, this guide will be helpful. We will cover everything about this and how it affects taxable income.
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What Does Business Use Of Home Expenses Mean?
Business use of home expenses allows you to deduct business expenses if you use your private place for company tasks. For instance, you may have a small office in your home for remote work. You can deduct the costs that this room uses, such as heating bills, utility bills, fees for getting the space cleaned, and much more.
The CRA will allow you to write off a specific area of your home for business. Your taxable income will be reduced because of this, and the bills of your house will also be easier to pay. Of course, you can write off a specific amount of home for business only.
How Much Of Your Home Can You Write Off For Business In Canada?
You can understand the percentage you can write off by knowing the size of your home office space and the total property size. For instance, if the space you used on your property for business purposes is 200 feet and the total size of the home is 1,000 square feet, you can get 20% of the home expenses deducted from your tax return.
So you should multiply the size of your office space at home by 100. Then divide the result by the total area of your home. The final figure will be the percentage you can get deducted from your expenses in your tax return.
The property must also meet the specific criteria set by the government. Your home must be the principal place of your business. This means you may not be able to claim the expenses if you have a large company for workers and meetings.
Another alternative criterion is that you must solely use your home to generate income in Canada by meeting clients or interacting with customers.
When Can You Not Deduct Business Use Of Home Expenses?
The CRA also has a specific condition that businesses must meet before benefiting from business use of home expenses. Your net income must not be lower than the home expenses. If the latter figure is higher, you cannot get the money deducted.
This condition has been mainly designed to prevent companies from increasing or creating a business loss. The CRA has also offered a guide for calculating your business use of home expenses.
You can deduct home expenses from your tax return if you are using a specific space primarily for business. The CRA allows you to get the money deducted in percentage form. Remember that there is no specific limit to the deduction if the net business income is greater.