Self Employed | Finally a Break on My Taxes
Mortgage payments are deductible in the US. However in Canada, mortgage payments are paid with after tax income except for those with home based businesses. A home based business enables the home owner to deduct certain home related expenses.
To qualify for deducting business expenses related to using a work space for business in your home, your home must be your “principal place of business” or you must “use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients” (Business and Professional Income, CRA).
If your home business meets this definition, you’ll want to check and be sure you’ve maximized the following home business tax deductions on your income tax.
Have you deducted an appropriate portion of all of your home maintenance costs? When we think about home maintenance costs, utilities such as heat and electricity spring to mind, but the cost of cleaning materials, for instance, is also a potential tax deduction. And what about house insurance? You can also deduct an appropriate portion of it as well.
How much can you claim as a home business tax deduction? The CRA advises taxpayers to “use a reasonable basis” to calculate the appropriate portion of home business expenses to claim; their formula of taking the area of the work space in your home and dividing it by the total area works well when calculating home business tax deductions.
If you own your home, have you deducted expenses related to home ownership? For example, if you own your own home and are operating a home business, you can deduct a portion of your property taxes as a business expense. Your mortgage interest and capital cost allowance (CCA) will also be a tax deduction, if applicable.
The Canada Revenue Agency forms T2124 and Form T2032 both contain a chart called “Calculation of business-use-of-home expenses” that you may find useful to figure out your allowable claim for home business income tax deductions.
The move of more and more Canadians to self employed status will ensure that Revenue Canada looks at these deductions closely. Have a CGA or CA review your taxes to ensure that you have not gone over the line on any deductions.
If you have any further questions, please contact us at the www.bcmortgageactioncenter.com
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