5-Step Tax Preparation for Home Office Expense Deductions

Since the COVID-19 pandemic, working from home has become an accepted part of the work world. Consequently, home office expense deductions have become a more common element of tax preparations and filings. This article explores the eligibility criteria of such deductions and offers 5 steps to help you calculate your home office deductions. 

Eligibility Criteria

Before you begin to gather receipts and calculate home office expenses, make sure that your home office meets the Canadian Revenue Agency’s (CRA) criteria of a home office for tax filing purposes. To claim home office expenses, one of the following must be true:

A. Your home office is your principal place of business (i.e. you spend more than 50% of your business time there). This can be a specific room, a spot on the couch, or the kitchen table. 

B. You use the space only to earn business income, and you use it regularly to meet clients, customers, or patients. 

Tax Preparation Step 1: Measure & Calculate Your Office Space

If your business activities meet the criteria above, you need to clearly identify which space or spaces of your home you use for your work. This can be tricky if you use communal space, but accurate tax preparation requires measuring these spaces and calculating what percentage of your home’s finished area this represents.

Example

Office space  165 cm x 244 cm = 4.026 m2   X 100 = 3.66%

Home’s finished area 110 m2  

Tax Preparation Step 2: Determine Your Expenses

You can deduct a portion of the following home expenses for your home office tax filings:

• utilities (heat, electricity, water)

• home or renter’s insurance

• property taxes (for homeowners) 

• rent (for home renters)

• maintenance and minor repairs

• internet and phone services (if used for work)

• mortgage interest (for self-employed individuals only)

If you are self-employed and work from home, keep detailed records of all business expenses, including office supplies and furniture. You will need them for step 5.

Tax Preparation Step 3: Calculate Your Expenses

Calculate your annual total for each of the items listed in step 2. Then divide each total by the percentage of your home that your office represents. 

Example

In step 1, we calculated that your office represents 3.66% of your 110 m2  home. Therefore, 3.66% of your annual expenses above can be considered a home office deduction.

Tax Preparation Step 4: Obtain Documentation  

If you are an employee who works at least 50% of the time from home and wish to include home office deductions on your tax filing, you will require a T2200 or T2200S from your employee. If you are self-employed and have a home office you will need to calculate and report all business-use-of-home expenses on a T2125.

Tax Preparation Step 5: Fill in Your Tax Forms  

After all the calculations above, filling in your tax forms may seem straightforward; however, there are several limitations and special considerations for each type of work-from-home situation. If it proves too challenging or more than you want to deal with, contact a Chartered Professional Accountant. They know the rules, exceptions, and special considerations for the various types of home office expense deductions. 

Contact Schmidt, Berg & Co. in Surrey. We have over 50 years of experience providing comprehensive tax filing services for employees, entrepreneurs, small business owners and more.