Comments on: How to Claim Your Home Office

By: FrugalTrader

FrugalTrader — Sun, 17 May 2009 12:18:37 +0000

CM, technically, CRA could go back to previous years and revoke your prior tax claims if you don’t show profitability.

By: Colourful Money

Colourful Money — Sun, 17 May 2009 08:15:59 +0000

You said that the CRA will only allow you to claim businesses expenses at a loss to continue for a 2-3 years at which point, they expect you to turn a profit.

So what if you continue not to profit after that 2-3 year threshold? You can’t simply claim these expenses anymore? Surely they can’t fault you for doing this, if it is legitimate, no?

By: Chet Kwapisinski

Chet Kwapisinski — Thu, 30 Apr 2009 16:01:53 +0000

Kiki — no CCA claim on Rental unless it is a business. You cannot claim bathroom ever, please read the Home Office Expenses. Look folks you can claim whatever you want as we have a self assessing system. However you need to understand the rules and apply them. If you are pre or post assessed or potentially audited you will be responsible for back taxes and interest the first time it is uncovered; however the 2nd time, 3rd time the penalties can be very punitive 25%, 505 of back taxes bothe federally and provincially.

Also there is a real misunderstanding on telephone deductions, you cannot deduct any amount for home office expenses for normal landline usage ever. It is viewed by the CRA as an integral part of your home that you would have with or without a business.

If you have a dedicated line- a fax line or landline or cell phone for business, then you can deduct all of those expenses as business expenses completely. That is why you have the telephones etc.. listed on the appropriate form in the section that applies to business activities whethe an employee or self employed. If a home office you must keep records to prove it was a business expense, ie) long distance telephone calls from a home that are business related and can be proved in reviewed are 100% deductible on the appropriate form. The cell phone is also another potential area that needs to be addressed, in other words, the same rules will apply that you would need to prove they are business related. If you use pay as you go, make sure that the card provider tracks the calls and can provide you a list of them. If you cannot, then you cannot prove they were realted to business. The onus of proof and understanding our tax rules is on you as a resident or citizen of Canada. The CRA produces many tax guides and Technical Interpretation Bulletins that address these issues and I encourage everyone to read them.

Enough said on my part… Great forum and FT, I applaud you for your insights and topics.

Cheers

By: Ray

Ray — Thu, 30 Apr 2009 06:54:32 +0000

Thanks for the review on Home Office. I had forgotten 50% of my land line I wasn’t deducting – yeah, I spend a lot of time on the phone for work. My office comes in at 8.9% of the home and doesn’t include a bathroom (damn). Probably too late now to bump the percent to include the bathroom seeing as I’ve already claimed a certain amount the last 3 years running – home offices don’t grow, do they? :)

I’m employed and have had the T2200 signed for the last 3 years. The extra deduction this year saved me $100, w00t.

By: Kiki

Kiki — Thu, 30 Apr 2009 02:25:43 +0000

Thanks for all your help. I like this blog, very well written. I will call CRA but now I assume that I can not claim the home office expense.
I am doing my tax right now, I am using form T776 and on there, I claimed my auto expense but I don’t find any place I can claim auto CCA although business form(T2125) allows to do that. Does the rental operation not allow to claim motor CCA? And since I can not claim home office, can I claim CCA on my cost of computer for the rental operation ( on the form T776)? Thks

By: Chet Kwapisinski

Chet Kwapisinski — Wed, 29 Apr 2009 17:31:19 +0000

Kiki and FT — just a final comment from me on Home Office Expenses. One way that may help you determine if they may apply in your circumstances is review the appropriate schedules where you report your income and see if there is a provision for calculating home office expenses ie) T777, T2125, T776. These schedules define what expenses may apply over all and then one needs to assess further which ones apply if you are salaried, commissioned or self employed etc…. Cheers

By: Chet Kwapisinski

Chet Kwapisinski — Wed, 29 Apr 2009 15:48:59 +0000

Kiki — the answer is “it depends” ; however based on the information you provided it seems that you have income from property and not income from a business. To be considered a business you would have to be generally providing additional services as part of the operations eg) maid services, cleaning services, supplying meals etc….

Factors that are irrelevant in determining whether you have business income are things like the the number of properties, the amount of time spent managing or supervising the units or houses…

Best talk to a professional as it does “depend” but based on what you have outline, my initial take is that you will not be able to claim home office expenses.

Hope that helps.

Cheers

By: FrugalTrader

FrugalTrader — Wed, 29 Apr 2009 11:25:02 +0000

kiki, probably best if you call CRA directly. However, with managing 3 rental properties, I can see how the home office could be considered a legitimate expense.

By: kiki

kiki — Wed, 29 Apr 2009 06:00:56 +0000

I have 3 rental properties and I do repair and renovate the rental properties my self. I don’t have other job, I also use the home office to place ads, reseach online or reading stuffs relating to managing rental properties. When I take care my rental propeties, my cost of labour can not be claimed. Can I still claim my home office including computer( depreciation), property tax, utilites,intenet, phone around 10% for manging rental properties? In books, some says I can but some others says I must have active income to claim ( rental imcome is passive or have at least 6 employees) ? Any one knows more about this with CRA, please give it some lights

By: New Dad

New Dad — Mon, 20 Apr 2009 14:03:17 +0000

Here’s a somewhat related question: I have a full time childcare provider that will come in to my house to look after our two kids starting next month. I will be doing the usual payroll deductions through CRA. Can a portion of expenses (utilities, insurance, etc.) be deducted from taxes?

I’m thinking that the can’t be deducted but just wanted to confirm.

By: cannon_fodder

cannon_fodder — Mon, 20 Apr 2009 09:13:14 +0000

I claim about 5% (my office is a separate room on the main floor of our house) but I never included the bathroom.

I work from home a lot as there is not an assigned space at our head office for me and my employer has been signing a T2200 for quite some time. I probably go into the office for meetings perhaps 2 times per month.

It isn’t much, but it sure helps. The benefits from working from home far outweigh the tax writeoff!

By: Chet Kwapisinski

Chet Kwapisinski — Mon, 20 Apr 2009 02:40:58 +0000

General guidelines may be fine along with opinions; facts and legitimate documentation along with an understanding of the rules and applied properly rule the day. They have always passed scrutiny.

Cheers,
Chet

By: Colourful Money

Colourful Money — Mon, 20 Apr 2009 01:31:36 +0000

Apparently I was told that anything past 30% claim of a home office is too much. Heck even 30% is too much.

Thank God for April 30th, procrastination rules! =)

By: Chet Kwapisinski

Chet Kwapisinski — Sat, 18 Apr 2009 01:00:54 +0000

“Darwin’s Finance” — my references here are to the Canadian Tax System ie) CRA Auditors and not IRS (US) as the Canadian and US laws are somewhat different. There will always be people exploiting and taking advantage of any system especially if it is based on honour, integrity and self assessment. I can only do what I believe is correct within my understanding of the law. As you see all types of abuse in our system and people will continue to exploit until they are challenged.

Cheers

By: Darwin's Finance

Darwin's Finance — Sat, 18 Apr 2009 00:23:34 +0000

Yes, in my case, referring to self-employed. Realistically, to claim that using a room in my basement is actually required for me to blog is pretty silly; I can’t imagine an IRS auditor that would believe that. Don’t get me wrong, I love to save on taxes too, but there are limits of reason. I know someone who claims their home office that has a bed in it. For real. They also eat out and claim it’s for business. It’s pretty common. It seems like the “thing to do” and harmless, but the people that are accurately reporting their income and tax deductions are funding the disingenuous claims of people that take advantage of the system right? Nothing’s really “free”, it’s the other taxpayers funding the behavior. So, it’s not always about “what you can get away with”, but also, what’s right.

By: Chet Kwapisinski

Chet Kwapisinski — Fri, 17 Apr 2009 23:31:28 +0000

“Darwin’s Finance’ for further clarification we need to differentiate the types of people using home office expenses as a deduction. If we are talking about the self employed then your accountant is bordering on the facts; however, some of it is subject to interpretation and some judgment, please read IT514 and then tell me that sending a personal email violates the rules technically. In addition to suggest that it is a red flag may be true; however, we have a system that has pre assessment and post assessment reviews for areas that may be cloudy or questionable. These reviews may or may not precipitate further investigation ie) an audit. I do not believe there is a single judge in the Ferderal tax court that woulds accept sending a personal message as a viloation nor would an auditor even consider highlighting such a fact in isolation unless it is in a context of multiple violations. Sorry to be so long winded; however, we have a fair tax system and legitimate, documented deductions should be used to their fullest. As a matter of fact it is our responsiblity to maximize our deductions to the fullest extent within the law. Cheers

Cheers

By: Darwin's Finance

Darwin's Finance — Fri, 17 Apr 2009 21:29:20 +0000

I had talked to my accountant about claiming the home office and he said it was ill-advised. Primarily, the office has to be utilized 100% for your business. There is no partial deduction for qualification. Therefore, if you utilize that computer to send a single personal email or perform work of a non-business nature (and the auditors can and will audit your computer, if they actually had the resources), you would be in violation. Additionally, don’t forget that when you sell your home, there’s some sort of additional fee that you have to pay back, perhaps due to your depreciation deduction? which negates part of the benefit. There were a few downsides, aside from the fact that it’s a favorite red flag for auditors. So, I just deduct partial laptop/cable/printer, etc., but not the office.

By: Chet Kwapisinski

Chet Kwapisinski — Fri, 17 Apr 2009 03:19:11 +0000

Just another clarification about home office expenses initially mentioned. Those expenses that are 100% business expenses should not be confused with home office expenses. The business expenses actually go an another part of the schedule, the new T2125 this year, and can be deducted from income to create a loss as opposed to home office expenses that are prorated because they are a shared resource (personal and business use).

Cheers

By: Kris

Kris — Fri, 17 Apr 2009 00:41:57 +0000

FT,
After reading your post, I am a little perplexed.

I use my home office to edit reports, which are emailed to me. I work part-time. It seems to me that I am supposed to further reduce my office expenses by the # of days worked per week (I average 3 of 7) and by the # of hours worked per day (I average 6 hours out of 24). If I do this, my home office expenses for the year are almost negligible.

I feel like I am being unduly penalized by the CRA for working part time. If I worked 5 days per week for 8 hours a day I do not think I would have to make the reductions, and could use your calculations.

Totally confusing to me and hoping to hear some news in my favour….

By: Instrumike

Instrumike — Thu, 16 Apr 2009 20:04:45 +0000

Thanks for responding FP.

I am in a similar situation – high tax bracket with a stay-at-home spouse. I’ll have to look into the spousal credit to see if it works for us.

Cheers