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Tax implications of working from home Reprinted from Bob Fortier's Sun Media column on working
at home: This
month in Working@Home, Bob Fortier looks at the tax implications of working from home in consultation with
Susan Phillips, work-at-home tax expert with the Ottawa accounting firm of
Newton and Co. "In a tax system where there aren't many deductions
still available to most of us, one of the most appealing is the ability to
deduct the expenses of a home office," says Susan Phillips.
She adds: "Many of our
clients just love the thought of getting a tax deduction for the costs of
maintaining their home!" But she cautions: "While it can be
worthwhile to examine your eligibility for deductions, not everyone is
entitled to make them. For some who are eligible, the deductions might not
be as attractive as they first thought."
Self-employed work at homers:
Canada's one million plus self-employed, home-based business owners must
meet three conditions. First, their home workspace must be their principal
place of business. Then, it must be used exclusively to earn business
income. Finally, they must meet clients there on a regular basis.
Teleworkers: Unfortunately,
it's trickier for Canada's one million teleworkers (paid workers, usually
employees). First, their home workspace must be their 'principal' place of
employment, usually meaning at least half the total time. Second, they must
use it exclusively for earning business income. Finally, they must obtain,
complete, and have their employer sign Revenue Canada Form T2200.
This cumbersome and
outdated form is more suited to the days when the few Canadian teleworkers
were mostly salaried salespeople and inspectors etc, unlike most today who
are knowledge workers. The form asks the employer to certify
that the employee is 'required' to keep an workspace at home and pay for
certain additional costs. The problem is that, because telework is a
voluntary arrangement, many employers understandably refuse to sign
the form.
However, Revenue Canada
interprets voluntary telework to mean "required" to keep a work
space and to pay for some of the additional costs of maintaining that work
space, if there is a valid telework agreement. The catch is that this
interpretation is not widely known, and many teleworkers cannot produce a
signed T2200 form and therefore cannot legitimately write-off their
expenses.
The deductions: All work at
homers are eligible to write off home-office expenses such as: Utilities
(heat, hydro, water); business phone; general repairs and maintenance;
Internet access; supplies; rent; and condominium fees.
Only self-employed work at
homers can deduct mortgage interest; capital cost allowance (although
usually inadvisable); home insurance; additional home office insurance;
computers, faxes and other hardware; office furniture; software; and
property taxes.
If you replace
business-related computers or software that are not Y2K-compliant before
June 30, you might qualify for a tax break permitting a 100% expense
deduction over a one-year period.
Teleworkers can write off
property taxes and home insurance, but only if they are paid by commission.
Expenses related to the home office itself must be pro-rated based on
office-to-home square footage. If the home office is shared with other uses,
a further pro-rating is required.
Examples: Remember that you
can deduct the business portion of your home only. To simplify, if your home
office represents 10% of the overall square footage of your home, you can
deduct 10% of the expenses of running your home. If you also happen to share
your home workspace quarter of the time with say, a den, your 10% deduction
should be reduced by a quarter to 7.5%.
Let's say Jane, a teleworker,
is required to maintain a home office, and that she uses it as her principal
place of employment. Jane and her spouse own their home, and she is not paid
on commission. Jane's house is 1,400 sq. feet, and her office is housed in a
den that is 10 x 12, which works out to 8.6% of the home. Her utilities
amount to $2800 per year, repairs, maintenance and supplies were another
$3000. This means that Jane can deduct 8.6% of $5,800, or a total of $497
for her home office.
As the Income Tax Act is complex and each
telework situation unique, this is a guide only. For clarification, consult
your local Tax Services Office, or Jane Phillips, whose firm provides tax
advice to all Canadians. |
