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The Financial Gazette
Wednesday, March 19, 2003
Section: Money
Byline: James Smith

Home-office tax breaks make working from your house or apartment an even better deal!

I love working from home! No commuting. No office politics. No cubicles. And best of all, the Canada Customs & Revenue Agency (CCRA) lets me deduct a portion of my apartment rent and utilities as legitimate expenses on my income tax return.

What a deal. Not only do I save non-deductible expenses for gas and parking that I used to spend driving to the head office downtown, but my new home-office offers several additional ways to save after-tax dollars.

(Editor's Note: These tips apply whether you are self-employed or required by your company employer to maintain your own office, but slightly different tax rules are in effect depending on your situation. Always consult a qualified accountant for expert advice on your unique circumstance).

So what qualifications do you need to meet?

Simple. Your home office must be your principal place of conducting business (completing 50 per cent or more of your work). You must use the home office to regularly meet clients or customers for business-related meetings. It's that easy.

Here's how it works:

For the self-employed working from home, you should set aside an area dedicated to the business alone. Measure the square footage, and calculate the area as a percentage of the total square footage of your house or apartment. If it's 15 per cent, that's the maximum portion of the pro-rated household operating expenses -- utiltiies, insurance, heating / air conditioning, maintenance, rent (if you're a tenant), -- you can deduct. Internet access and business telephone (track long distance calls separately) can be deducted up to 100% if used exclusively for your company.

Capital items such as computers, desks, printers and copiers above a certain value must be depreciated over several years rather than written off directly against your income (as long as the deductions are not greater than the income). The formula is best left to your accountant to calculate.

(Editor's Note: If you own your home, be very careful about deducting any proportionate amounts of house depreciation. Experts warn that you may be jeopardizing one of the last bastions of tax-free capital gains -- your principal residence. Again consult your accountant before submitting your tax return. You don't want to incur an unexpected tax bill upon the sale of your home).

As a result of careful analysis and record-keeping, you will be able to deduct the eligible expenses from your gross revenues, reducing your income tax. This equation will result in potentially thousands of dollars in your pocket instead of the RevCan tax man Why pay your 'business partner' in Ottawa any more than you absolutely have to pay? Take the home-office tax breaks you deserve.

For salaried employees, there are still few tax breaks, even for those working at home. First of all you require a "Declaration of Conditions of Employment" in writing from your employer stating the company "required you to rent an office away from your place of business or use a portion of his or her home." Without this T2200 (01) letter, you will not be able to deduct even the few expenses allowed under the Income Tax Act for such business costs as supplies, transportation (car), rent, or an assistant. Nor can you deduct mortgage interest, property taxes or house insurance. You may want to consider creating a company and out-sourcing your services to your current employer under a contractual arrangement that meets CCRA standards.

So plan ahead and save yourself some money this year by taking full advantage of any home office tax breaks afforded you by Canada Customs and Revenu Agency.

© Copyright  2003 The Financial Gazette

Edition: Final
Story Type: Finance

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