Home Office Expenses

The income tax rules related to home office expenses (technically called “work-space-in-the-home expenses”) are similar for self-employed individuals and non-commissioned employees as well as commissioned salespersons, however, there are certain important differences.

For Self-Employed Persons

In order for you to deduce your home office expenses from self-employment income (business income), the your home office must be your principal place of business or it must be used on a continuous basis exclusively by you to earn business income including meeting clients, customers, or patients as part of your normal business activity.

Deductible home office expenses for a self-employed person includes rent, repairs and maintenance, insurance, property taxes, mortgage interest (no the mortgage principal), heat, light, and other expenses. The deductible portion of these costs is a “reasonable amount” which is typically calculated based on the square footage of the home office as a percentage of the total square footage of the home.

You may claim a deduction for depreciation on the building (called “capital cost allowance” for income tax purposes), but doing so could affect the status of your home as your “principal residence” for purposes of claiming the “principal residence exemption” to offset the capital gain on the property when it is sold.

Your home office expense deduction in a year cannot exceed your net business income for the year before the deduction. Excess home office expenses are carried forward to be claimed as a deducted against business income of the following year.

For Non-Commissioned Employees and Employees who are Commissioned Salespersons

For non-commission employees and employees who are commission salespersons, the home office must be the place where the employee principally (more than 50%) performs his or her duties of employment or the home office is used exclusively by the employee on a regular and continuous basis for meeting customers and other persons in the ordinary course of employment.

Deductible home offices expenses for a non-commission employee includes rent, heat, light, water, and maintenance costs (i.e., light bulbs, cleaning, minor repairs, etc.). You will note that interest, property taxes and “capital cost allowance” are not included in this list. The deductible portion of home office expenses for an employee is the same as for a self-employed person, being a “reasonable amount” typically calculated based on the square footage of the home office as a percentage of the total square footage of the home.

Employees who are commissioned salespersons may claim the same home office costs and in the same proportion as a non-commission employee plus a proportionate amount of insurance and property taxes but they cannot deduct mortgage interest or “capital cost allowance”.

For both the commission and non-commission employees, the home office expenses deducted in the year cannot exceed the income from that particular source of taxable employment income for the year. Unused expenses may be carried forward and deducted against that particular income following year.

Your employer must certify that the conditions of your employment require you to have a home office by signing the form T2200 Declaration of Conditions of Employment. Administratively, the CRA does not require you to file the T2200 with your tax return; however, you must retain the form in case the CRA wishes to see it.

Contact a Chartered Professional Accountant if you have any questions regarding your ability to claim home office expenses as a deduction against employment income or against income from self-employment.