Many people, both employed and self-employed,  spend at least part of their work-day at home.  If you are in that group, you may be able to claim a tax deduction for a portion of your home expenses.  What is deductible depends on the nature of your work, and your specific circumstances. 

The first question to ask is are you self employed or an employee.  If you are an employee,  you may be paid a salary/wage or by commission.  The rules vary for each group.

The next question is whether or not you have a specific area set up in your home that you use exclusively for business/work, and if you do, do you use it on a regular and continuous basis for meeting clients, customers, or patients.

The third question is where is your principal place of work.  This question may cause some confusion for people who spend a lot of time “away from the office”.  Your principal place of work is where you spend more than 50% of your “office time”.

Now, lets look individually at each situation.

Employees

Before going any further you need to get a completed and signed T2200 from your employer.  This form verifies that having a home office is a condition of your employement and, furthermore, that you are not being reimbursed for the cost of that home office.

Once you have the form, the next step is to decide if you actually have a space that qualifies.  You need to meet one of the following conditions:

1.  The work space is where you mainly (more than 50% of the time) do your work.

OR

2.  You use the work space only to earn employment income, and you meet clients/customers there on a regular and continuous basis.

Assuming you are entitles to make a claim, what exactly is deductible?  that depends on the nature of your employment.

Non commission employees

You can only deduct expenses that relate directly to your work space.  These include the cost of electricity, heating, rent and maintenance of that area.  You cannot deduct insurance, property taxes or mortgage interest .

Commissioned employees

In addition to the expenses that may be claimed above, commissioned employees can claim house insurance and property taxes.  You cannot deduct mortgage interest.

Self-employed business people

You need to meet one of the following conditions in order to claim a business use of home deduction:

1.  The work space is your principal place of business.

OR

2.  You use the work space only to earn business income, and you meet clients/customers there on a regular and continuous basis.

You can deduct a portion of all your home costs including electricity, heating, maintenance, insurance, property taxes and mortgage interest.

How much can you deduct?

You need to determin what percentage of your house is used for your work space.  You can calculate the percentage based on either the number of rooms in your home or the square footage.  If you don’t use the work space exclusively for business/employment you also need to factor in what portion of time it is used for work vs personal use.

Use the above percentage to calculate your home office costs for the year.

Home office costs can only be used to reduce your income from that employment/business to nil.  You cannot use them to create or increase a loss.  Any home office costs that you cannot use in the current year can be carried forward to the next year provided you still qualify for the claim.

Using your house for storage

You may find that you need to use part of your home for storage of business supplies or inventory.  Technically this use does not appear to qualify under the business use of home rules.  In practicality, if you can show that you are using that space for business purposes it can be included in the above calculations.