How Much of My House Can I Write Off Through My Business?

Kelownan accountantAs a Kelowna accountant, I meet with a lot of entrepreneurs that have a home office and they want to know how much of it they can write off at tax time. This is not a question with a cut and dry, cookie cutter answer.  It is very dependent on exactly what your business is doing that requires your home.

Is This Your Main Office?

The first thing I always establish with my clients is to ensure that their home office is indeed their primary and only office. On the other hand, if you’re like me, I have an office that I primarily work out of and meet clients, but I always have an office at home also.

In my case, my home office is a secondary office and clients are primarily being met with elsewhere. This carries high-level restrictions because my home office is not my primary one.

If your home office is your primary office, what you can deduct is based on a portion  of expenses to operate the home. This could include things such as:

  • Heating and other utilities
  • Property taxes
  • Repairs & maintenance
  • Mortgage interest
  • Home insurance (the portion related specifically to running the business may be 100% deductible)

Here is where you need to be careful, because your deductions are all based on a percentage of use.

Related: Great Habits That Will Save You Money in 2012

Keep Track of All Expenses For The House and…

Kelowna accountantWhat most people will do is base this number off of the square footage of space that is allocated to the home office. So if you have a dedicated office or garage in your home and that becomes part of your business, the common way to handle it is to keep track of all expenses for the house and then work your calculations based off the dedicated square footage.

For example, if you use 100 ft2 out of a 1,000 ft2 home that is used for business (and that’s the primary purpose), then you are able to deduct 10% of the house expenses.

You can run into a problem if you don’t have a specific, dedicated office or space in your home. If you’re using the dining room, the kitchen and the living room for work, the issue is that those spaces are also being used for the family. In this case, the square footage method will not be reasonable because your family probably uses the space more than your business does.

Everything is based on reasonable usage for business, so remember that if you have space that is dedicated for it, it will be a lot easier to calculate deductions than if you do not have a dedicated work or office space.

Related: Should I Buy or Lease a Company Vehicle?

Can I Write Off My Home Renovations?

The easy answer is NO. Any renovations you do for your house, you do not want to write off in your business. You never want to depreciate the cost of your house for business purposes.

Your house is a special tax haven because Revenue Canada allows you to sell your homes using Principal Residence Deduction essentially tax-free as long as you have it designated as your principal residence.

The problem that arises when you use it for business and depreciate that asset for business purposes, Revenue Canada recognizes part of the house as a business as opposed to a principal residence. So when you go to sell it, you will be surprised because Revenue Canada is going to inform you that 10% of the proceeds you just got on the sale of your home (based on our previous example) are now taxable.

In Conclusion

Speak with your Kelowna accountant or professional advisor to understand any and all implications that you must be aware of. Due to the various stipulations by the Canadian Revenue Agency (CRA), claiming a portion of your home as a business expense can get rather complicated.

Have any questions that you would like to see answered in my blog? Shoot me an email at kdavidson@bdo.ca or connect with me on Twitter (@KenDavidsonCA).

 

 

5 Responses to How Much of My House Can I Write Off Through My Business?

  • Good info Ken… thanks!

  • Coach Cijaye says:

    Thank you for the informative article Ken. As I already commented on LinkedIn, I had no idea that the same portion of expenses you claim in your home – would be taxable when you go to sell your home. It is logical for sure, but still news to me. I appreciate this article.

  • Geoff says:

    Thank you Ken. This post had the answer I was looking for. I will not deduct home renos towards business expenses to save myself some grief.

  • lynette wherley says:

    Hi

    If my boyfriend stays every night (or more than 3/4 of the year) at my house, can he write his entire house off to business? Or what types of financial advantages or writeoff/savings capabilities exist to a business man attempting to use his home this way?

    Please advise.

    • Ken Davidson says:

      Hi Lynette,

      Your situation is very unique. It totally depends on what your boyfriend is using the house for. Writing off that much of the home is probably too aggressive, in my opinion.

      Ken

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