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Business-Use-of-Home-Expenses

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									INTERACTIVE SAMPLE CALCULATION OF BUSINESS USE OF HOME EXPENSES
PLEASE REFER TO EXPLANATORY NOTES ON SHEET 2                                       SAMPLE ONLY, INSERT YOUR
AMEND EACH YEAR AND EACH TIME CIRCUMSTANCES CHANGE                                  FIGURES IN YELLOW CELLS




AVAILABLE AREA FOR BUSINESS USE:                                                  Square ft.    LINE NO.

Area sq. ft. of interior of home (excl.; basement, garage, additions                    2,000      1
that are for bus. use only) (note 1)
Area sq. ft of entire basement if used partly for business                              1,000      2

Area sq. ft. of additions for business use only (note 1)                                  500      3

Area sq. ft. of entire outside driveway if used partly for business vehicles              500      4

Area sq. ft. of garage if used partly for storage or parking of business veh.             400      5

TOTAL AVAILABLE AREA FOR PERSONAL AND BUSINESS USE (lines 1 to 5)                       4,400      6


OCCUPIED AREA FOR BUSINESS USE:                                                    Square ft.
FOR AREAS THAT ARE INCLUDED ABOVE:
Area of sq. ft. in line 1 used exclusively for office (but see note 5f)                   400      7

Area of sq. ft. used in basement or loft used only for office storage or office           300      8

Area of sq. ft. used of additions for exclusive bus. use (use line 3 amount)              500      9

Area of sq. ft. of driveway used for parking bus. vehicles                                100      10

Area of sq. ft. of garage used for storage or business veh. parking                       100      11

TOTAL OCCUPIED AREA FOR BUSINESS USE (lines 7 to 11)                                    1,400      12

ALLOCATION PERCENTAGE TO HOME OFFICE USE (line 12/6)                                      32%      13


COMMON AREA FOR BUSINESS USE:

Sq. ft. of area in line 1 (hallways, foyers, b.r.) used partly for business               250      14

Sq. ft. of other areas in line 1 used partly for bus. (eg.meeting room)                   300      15

TOTAL COMMON AREA USE (lines 14 + 15)                                                     550      16

TOTAL COMMON AREA USED FOR BUSINESS (line 13 x line 16, note1)                            175      17


GRAND TOTAL OF PERCENTAGE HOME OFFICE USE                                                36%       18

Important-see notes 4b,4c.4d- do not exceed 50% or you may lose tax free
sale of residence status.
HOME OFFICE EXPENSES:                                                                       $ Amount
COMMON EXPENSES FOR ENTIRE PREMISES FOR YEAR APPLICABLE
EXCLUDE EXPENSES FOR BUS.PORTION ALONE -SEE BELOW AND NOTE
Mortgage Interest (if applicable)                                                          $    4,567.00       19

Rent (if applicable)                                                                       $          -        20

Property Taxes                                                                             $    2,500.00       21

Hydro, Heat, and Electricity                                                               $    1,500.00       22

Condo Fees and Special Assessments (if applicable)                                         $      400.00       23

Insurance                                                                                  $    1,200.00       24

Minor Repairs (if applicable)                                                              $    1,000.00       25

Maintenance (including housekeeping, landscaping, and upkeep)                              $      500.00       26

Other                                                                                      $    1,000.00       27

TOTAL OF COMMON HOME OFFICE EXPENSES (lines 19 to 27)                                      $ 12,667.00         28

TOTAL COMMON EXPENSES PROPORTIONED TO BUSINESS                                              $ 4,534.21         29


ADD: PREMISES EXPENSES FOR BUSINESS AREAS THAT ARE IN LINES 7-11 ONLY
(these expenses not included above)
Repairs, decorating, refurbishing- business premises              $   845.00                                   30
Business premises insurance                                       $   240.00                                   31
Pictures, locks, security for business portion                    $   230.00                                   32
Additional property taxes assessed for business areas             $                                            33
Other                                                             $                                            34
Total Additional Premises Expenses                                $ 1,315.00                                   35
GRAND TOTAL OF BUSINESS USE OF HOME EXPENSES (LINES 29+35)        $ 5,849.21                                   36

Use the total on line 36 immediately above as business occucupancy costs on your tax schedules.
For those using T1 schedules T212 or T2032, insert this total on page 2 of those tax forms in the
area entitled 'Calculation of business use of home expenses', in the sub-total line after the 'personal use' line.

THIS CALCULATION IS ONLY A SAMPLE OF A REASONABLE ALLOCATION OF
COMMON AND SPECIFIC PREMISES EXPENSES FOR BUSINESS PURPOSES.
Retain a hard copy of this calculation and all receipts for future reference if CRA requests details.
There are no official instructions from CRA for calculating the business
portion of home office expenses. All calculations must be reasonable in the circumstances.

IMPORTANT: REFER TO THE FOLLOWING NOTES FOR INSTRUCTIONS FOR COMPLETION
OF THE ABOVE CALCULATION AND FOR IDEAS, COMMENTS AND CRA RESTRICTIONS
FOR CLAIMING HOME OFFICE EXPENSES.

FOR USE FOR PART TIME BUSINESS USE ONLY. SEE NOTE 4C.

RETROACTIVE TAX SAVINGS- USE THIS SAMPLE CALCULATION FOR RE-EVALUATING THE LAST 3 YRS.
OF YOUR HOME OFFICE CLAIMS. IF YOUR PAST CALCULATIONS SEEM QUITE LOW COMPARED TO
THE RESULTS OF THIS SAMPLE CALCULATION FORMAT, YOU SHOULD CONSIDER
AMENDING PRIOR YEARS RETURNS BY FILING A T-1 ADJUSTMENT REQUEST FORM.
VIST CRA SITE FOR THE FORM.
                      INSTRUCTIONS, IDEAS, COMMENTS, RESTRICTIONS

          SAMPLE CALCULATION OF SQ.FT. AND RESULTING BUSINESS USE OF HOME EXPENSES




Special Note:




INSTRUCTIONS




1. Step One




Insert sq.ft. of the areas occupied for your part time business use on lines 7 to 11 inclusive.




2. Step Two
Suggestion




3. RESULT




4.       Summary of CRA Rules for Home Office Expenses
(ITA 8.13, 18(12), 18(1)(a), 18(13) (IT352 R, IT514).
IMPORTANT




e) There is no requirement under the ITA to have your home zoned in part for business use.




5.    TAX SAVING HINTS:

a) Changes to Prior Claims to Produce Refunds
f)   Insurance premiums for protection of home office (special rider) is 100% deductible.




December 2011
                        INSTRUCTIONS, IDEAS, COMMENTS, RESTRICTIONS

          SAMPLE CALCULATION OF SQ.FT. AND RESULTING BUSINESS USE OF HOME EXPENSES
This is only one of several ways to calculate the proportion of business use. There is no
specific or approved manner of calculation. One can use equations containing number of
rooms, for example. CRA seems to prefer using physical space of the premises. Remember,
you need to be reasonable and truthful, your reasons have to be supported. Otherwise, give
yourself the benefit of the doubt. Be creative, take pictures of your workspace for support.
Ensure your business name is in the yellow pages, you have business cards and professional
brochures, letterhead, signage with your business name. Don’t use just your name for the
business. Good fortune.


Special Note:
This document and the spreadsheet itself is not intended to be professional advice. Seek advice from a
tax professional familiar with your specific circumstances. Responsibility for accuracy of calculation,
documentation and manner of calculation rests solely with the taxpayer.

INSTRUCTIONS

The Calculations sheet is a protected worksheet. Use only yellow cells. You can only print
the entire page. This page is unprotected and has been optimized for printing so you can
select what you want to print. You may wish to optimze your print settings under the file
menu, print preview.

1. Step One

Insert sq.ft. measurement in lines 1 to 5 inclusive for your entire principal residence. This
calculation is designed to account for areas specifically constructed for business use and
common areas as well. All measurements are from inside of walls.

Insert sq.ft. of the areas occupied for your part time business use on lines 7 to 11 inclusive.

For foyer and hallways and others, on lines 14 and 15, the sq.ft. for business use is
subjective. Choose the areas most frequently used by yourself and clients.

The formula uses the % on line 13 to add that % of common areas as partial business use to
provide a total of all areas for business use.

2. Step Two
Insert actual home expenses paid in year on a consistent basis with prior years (cash when
paid or accrual when owing) line by line (lines 19 to 27 incl.).

Separate expenses paid (repairs, maintenance) exclusively for areas included in lines 7 to 11
incl. and insert on lines 30-34 incl.

Suggestion


If premises is in joint names, include in step 2 only the amounts you personally pay out of
pocket for premises expenses. If funds commingled with spouse or common-law partner,
calculate your % of contribution to house expenses based on % of your income to total family
income or the reasonable formula. Re-arrange your expenses so you pay for the house
expenses and the non-business co-occupant pays other non-deductible expense. This
suggestion is only an extreme position, as any CRA audit will probably (not always) allow
expenses paid by any of the principal occupants, if the bank accounts are in joint names.

3. RESULT

Your spreadsheet will automatically calculate the amount of your home expenses to use as a
tax deduction. The result is a fair, middle part of the range of possibilities for the amount of
home office expenses you should be able to justify. You have documented your calculation
and are ready for CRA. The authors experience is that CRA generally allows up to 25% with
more justification required for higher than 25% of business use. Hence, the reason for this
spreadsheet.

NOTE: Telephone, cable, internet connections may have a different % of business use, so
these items should be pro-rated for business use separately.

4.       Summary of CRA Rules for Home Office Expenses
(ITA 8.13, 18(12), 18(1)(a), 18(13) (IT352 R, IT514).

a) Your home office can be either your principal place of business (see 4c, 5c below) or for
part-time use. Commission agents should not be paying for use of an office elsewhere (desk
fees) but can pay for administrative charges elsewhere.

b) If your home office is not your principal place of business, the areas you designate in your
home as home office should be used exclusively for business on a habitual and continuous
basis for meeting clients (CTC 2832, concluded seeing one patient per week and seven
telephone calls per night is regular and continuous).
c) If you work at least 50% of the time out of our home office, exclusive use of the home
office areas of the home for business use is usually not required. See note 4d below. Pro-
rate your total premises expenses based on actual business use (# of days) and document
each day of business use in a diary. This is useful for employees working from home as well.
If you are an employee (even employed by your own company), you must have your
employer sign a declaration (T2200) starting you are required to work from home, and you
should complete the Statement of Employment Expenses (form T777). Both forms must
accompany your tax return

IMPORTANT

d) If you deduct more than 50% of your home office expenses or claim any capital cost
allowance (depreciation), you will lose a portion or all of your principal residence exemption
(the tax free gain on sale of your home).


e) There is no requirement under the ITA to have your home zoned in part for business use.
f) Home office expenses are calculated on page 2 of schedules T2032 (Professional
Income) and T2124 (Business Income). This is because you cannot create or increase a loss
by deducting home office expenses. There is a carry forward provision for unused home
office expenses. [A recent tax case has allowed a loss created by home expenses for acting
as an employee of a start up corporation owned by the home occupant.]

g) Deductions remain subject to REOP. It must be a business (hobbyists and collectors
should receive professional advice) with the expenditures incurred for a Reasonable
Expectation of Profit.

5.    TAX SAVING HINTS:

a) Changes to Prior Claims to Produce Refunds
If you feel your previous years calculations resulted in too low an amount of expenses for
home office compared to your new calculation, ask CRA to adjust prior years claims (3 years).
Send a T-1 adjustment form to CRA for each year you desire to change. You will have your
documentation on hand (from completion of this spreadsheet) should they ask for it. See an
actual adjustment (retroactive) allowed by CRA for 3 years. This was an amendment
whereby the taxpayer original claimed 6.67% of home expenses, I requested a change to
39%, and CRA agreed to 20% without dispute.

b) If you do not own or rent the premises, (lease in your name) the amounts in cash you pay
to the owner (or tenant) can still be deducted (business portion). The owner (or tenant) will
have rental income but unless the amounts you are paying exceed a fair share of the costs,
the owner (or tenant) will just be recovering their costs so the tax consequences to them
would theoretically be nominal.
c) If your home office is your principal place of business, you need not see customers at
your home and you are not required to ensure you have designated specific areas for
exclusive business use. However, designating areas for exclusive business use increases
the % of home office use because, for those areas, there is no personal portion.

d) Separate client entrances means no personal use portion for that entrance, foyer and
hallways.
e) Exclude basement and lofts from the total living area if you don’t normally ‘live’ there,
except if you are claiming a portion of the basement or loft levels for business use.
f) Insurance premiums for protection of home office (special rider) is 100% deductible.

g) Retirees receiving investment income or pensions who are performing more than ‘odd
jobs’ of a reasonably material dollar amount can make a case for being in business (not just a
hobby) and thereby claim home office expenses, especially for profitable activities.
Workshops producing goods for resale or barter may create attractive home office expenses.
Professional advice is recommended.

h) If your home mortgage interest is partially a result of re-financing your home mortgage for
cash used in the business, this portion of interest is fully deductible (not apportioned) and
should be placed on line 34.

i) Alternative ways to calculate the proportion of home office use include proportioning the
number of rooms, number of floors (if reasonable) or any other justified measurements.

December 2011

								
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