Running a home-based business is just the same as running any other business in Canada for income tax purposes. If you are making money from your home-based business, then you can claim tax deductions. However, there are some additional deductions that you can also claim.
1. Vehicle Expenses – You may use your car both for business and personal use, but you can claim the business portion of your car use expenses. This includes the following:
- Fuel and oil, registration and insurance. Supplemental insurance for business use is fully deductible, but if you do not insure your vehicle for business use and have an accident then your insurance company may deny your claim.
- Maintenance and Repair
- Interest on money borrowed to purchase a vehicle that you use to earn income, but there is a limit to the amount of interest you can deduct for a passenger vehicle
- Leasing costs
- Accident Repairs – if the accident happens while you are driving for business purposes you can claim the entire cost of the repairs.
Important to know: You can only deduct a portion of your vehicle expenses, so it is important to keep a record of the mileage you drive in order to earn income. Your expenses are prorated for the business portion of the total kilometers you drive in a year. For further information see: What Motor Vehicle Expenses Can You Claim on Income Tax in Canada?
2. Insurance – You should be able to deduct insurance premiums for your home-based business. However, home-based business insurance is seen as commercial insurance and is entirely separate from your home insurance. If you are running a business out of your home and you do not have this separate insurance, then you may not be covered at all as your insurance may be invalidated as you did not inform your insurer that you were running a home-based business.
Important to know: You may also be able to write off part of your home insurance if your home-based business meets the conditions for claiming business-use-of-home conditions.
3. Office Expenses: Even if your “office” is just a desk in a part of your home, you will still be able to claim office expenses, but you will need to separate your office expenses from your home expenses. You will be able to claim for depreciable assets such as your computer, filing cabinet, phone, printer and other equipment under the rules of Capital Cost Allowance. As these assets depreciate over time you can only claim for part of their original cost each year. The CRA has categories for depreciable assets with different rates of Capital Cost Allowance. For more information see: Capital Cost Allowance and Capital Cost Allowance hub.
Important to know: You don’t have to claim Capital Cost Allowance in the year that it occurred, you can roll it forward and claim in a year when you have a higher income.
4. Mortgage interest and Property Taxes– As long as your home-based business expenses meet the requirements for business deductions you can claim your mortgage interest. You must use the work space in your home as your principle place of business to earn income, and you regularly meet clients, or customers there. You can also claim your property taxes or the cost of your rent.
Important to know: You can only claim a deduction dependent on how much of your living space and time is devoted to business use. For more information see: Calculating the Home-Based Business Tax Deduction
5. Other Business-Use-of-Home-Expenses – these include:
- Maintenance and Repairs
- Cleaning Materials
- Internet Connection
Important to know: The CRA allows you to deduct “any reasonable expense you incur in order to earn business income” but your expenses must be supported by a receipt or invoice.
Carry Forward of Unused Work Space in Home Expenses – business use-of-home expenses cannot be used to create or increase a business loss. Should you have more expenses than income for your home-based business then you will have unused Work Space in Home Expenses which like the unused Capital Cost Allowance you can carry forward to use against a higher income in a future year.
It is important that you keep good records and that all your expenses are documented with receipts so that you can claim them against your business income.