DAVID WILKENFELD, CPA, CA, canadian tax CONSULTANT

What’s Your tax Issue? Workspace At Home

In Canadian Income Tax, Personal Tax on March 6, 2012 at 10:57 pm

Well, it’s tax time again, and so from now until the end of April, The Tax Issue will be devoted to your tax issues. So send in your questions and subscribe to this blog to make sure you don’t miss the answer!

Today’s question is very interesting and it affects many people as more and more are working from home these days.

The Tax Issue

My late husband was a CA and he always said we should not claim some of our home office expenses as it would create some sort of problem when we later sold the house. He died a decade ago and I am the furthest thing from a CA that there is!

Last year, my job changed and I now work at home full-time. My employer issued a T2200 for me to claim office supplies and other expenses. If I claim part of my heat, power and desk chair, will that trigger any problems in two years to come when I sell my house?

The Answer

Don’t worry about selling your home, you’ll be fine!

The fact is, as an employee, you can claim only certain specific expenses as required by law, and those are subject to some very strict conditions. Your employer must require you to work at home. Thus, the requirement for the T2200 form.

In order to claim part of your home expenses, you must meet one of the following two conditions:

  • The work space is where you mainly (more than 50% of the time) do your work.
  • You use the work space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients or customers.

You can deduct the part of your costs that relates to your work space, such as the cost of electricity, heating and maintenance. However, as an employee, you cannot deduct mortgage interest, property taxes, insurance or capital cost allowance (depreciation).

To calculate the percentage of work-space-in-the-home expenses you can deduct, use a reasonable basis, such as the area of the work space divided by the total area.

If you need more information on deductions of home expenses or other employment expenses you can claim, you will find it at the CRA website.

Now, back to your late husband and his concerns. The rules on home office expenses are different for self-employed people. They can claim a portion of taxes, insurance, mortgage interest and depreciation (CCA) in the calculation of their self-employed earnings. However, if they choose to claim CCA, they will likely suffer in the end when the house is sold, since it will not completely be eligible for tax-free treatment as a principal residence. That’s what he was worried about and that’s why most self-employed people are advised not to claim CCA on their homes.

  1. If you are self-employed and deduct everything re office in home except cca,you won’t be subject to any capital gain?

  2. That is correct, as long as the income-producing use is ancillary to the main use of the property as a residence.

  3. Does the wording, “meeting clients or customers.” Mean only face-to-face and in-person? Or can it also mean meeting over the phone, teleconference, communications via email, Skype or other electronic means?

    Also can “clients” or “customers” mean board members you report to, members and external stakeholders?

    Thanks.

  4. There is an error, on CRA site, you can see it says you cannot deduct property taxes and home insurance for work space in house expenses

    http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/slry/wrkspc-eng.html

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