Claim Work from home expenses, here are some advices.

Many people believe that as long as they work from home, they can deduct home expenses in reducing the income. That may be partially correct.But you have to be careful.

If you are lucky enough and selected for tax review/audit, here is a sample of questions that the CRA may ask you.

• A letter from your employer confirming the following:
  -Your primarily more than 50% of the time carry out the duties of your employment from
  the office that is located in the home or that you meet clients there on a regular and continuous basis;
  -The type and amount of expenses that were reimbursed and the allowances received the letter
  should also confirm whether these amounts were included on the T4 slips
• For work space in the home expense please provide:
  -Receipts for office expenses (light, heat, office supplies, minor repairs, cleaning material);
  -Total number of rooms in your principal residence;
  -Indicate the number of square feet of your home used for employment purposes and the number used for personal use;
  -Number of rooms set aside and bring used solely as an office for earning income;
  -Description for your total property like size of lot garage, shed or outbuilding;
  -Total amount of above space set aside and used solely for earning income;
  -Indicate the location where you primarily do your work also state if you regularly and continuously meet your clients at that work location;

Do you feel the heat now? So, before you claim, what you need to know?

First of all, these expenses must be used directly in your work and your employer has not reimbursed and will not reimburse you.

Secondly,remember this, the space in your home is where you spend more than 50% of the time to perform your job and ultimately earn your employment income. Another condition that you should pay attention is you have to use the space on a regular and continuous basis.

The last one is the copy of Form T2200,declaration of Conditions of Employment, which has been completed and signed by your employer. You need to make sure what it is written in the form is consistent what you deduct on your tax return.

Salaried vs. self-employed

Generally speaking, there is no difference for salaried based and self-employed in claiming the home office expenses regarding the nature of the costs. The costs that incurred like electricity, heating, and maintenance and even Internet service charge are deductible.However, for salaried-based employee, you cannot deduct mortgage interest, property taxes, home insurance, or capital cost allowance. If you are self-employed, your home office must be the principal place of your business, or you must use the space exclusively for business purposes on a consistent basis.

How am I going to determined the usage of home office expenses then?

Be reasonable. A lot of people just throw in a percentage to their accountants without any support. But,when the CRA comes after the claim, they have no idea where to find the supporting evidence.Life becomes miserable when the CRA throws those questions to them.So, the right way to this is: use the area of your work space divided by the total area. Normally, the percentage should not exceed 30%, unless there is a special purpose of home office.

How much can I claim?

Well, the CRA does not like taxpayers abusing the system. The deductible amount is limited to the amount of employment income remaining AFTER ALL OTHER EMPLOYMENT EXPENSES have been deducted.What it means you can not create a loss from this source of income.

What if I didn’t claim all the home office expenses?

In a situation that not all the relevant home office expenses are deducted in certain year, you still can carry forward the expenses and deduct them in the future year
as long as there is no change in employment.

Can I claim tax depreciation on the principle residence?

Sure, you are allowed to claim capital cost allowance on your property. But watch out, there will be a recapture(included in income) when the property is disposed at a gain.

Last advice, I know a lot of people overlook the importance of the records. Keep all the records in a organized manner. You don’t know when the CRA may come after you, if you don’t have those receipts and back up available/respond to the CRA auditor promptly, your claim may be declined. What will happen next? You may be pay the taxes resulting from the adjustment imposed by the CRA. Get it clean and get it right at the first time.