With a new year underway, entrepreneurs and small business owners should be armed with receipts and ready to tackle another tax-filing season. If you’re new to the world of owning a business, you’ll be relieved to know you can save on some of your business expenses. In fact, there’s a whole list of CRA-approved business expenses you can deduct from your taxes.
Since the pandemic started, there has been an increase in home-based-businesses. This article will cover the topic of home office-related tax deductions, discussing the terms and conditions and the allowable expenses that you can deduct.
According to the CRA, business owners can deduct several common business expenses from their taxes. An expense is tax-deductible if incurred to make and keep your business operational. Besides that, the expenses must be:
Your home office expenses fall under the business use-of-home expenses in the CRA’s table of main operating tax-deductible business expenses.
Canada Revenue Agency recognizes that many entrepreneurs and small business owners manage their business from home. If you’re one of them, CRA allows you to deduct home office expenses from your taxes as long as you meet at least one of the following conditions:
If you meet the requirements, you can claim a deduction on your tax form for working from home (T2125) as a small business owner / sole proprietor. Any expenses incurred in the normal course of business can be deductible for taxes, including expenses related to your home office / business use of your home:
Note: You shouldn’t deduct depreciation on your home as a home office tax deduction. Although CRA does allow this deduction, when you sell your home, you’ll be liable for the capital gains and recapture of depreciation taxes.
The amount of your business-use-of-home expenses you can deduct depends on your net income. The home office tax deduction Canada will allow is the total of expenses calculated by using the lessor of:
If you’re having trouble calculating the amount your tax form for working from home as a small business should include, visit the CRA’s Form T2125 or the associated guide. The section Calculation of business-use-of-home expenses in this document can help you work out how much you can deduct.
Small business owners can deduct a few other expenses from their taxes, apart from those attached to their tax form for working from home. Take a look at the list of those deductions: