Claiming Home office expenses for self-employed individuals

Hi Tony,

I’m hoping you can provide some guidance regarding a few questions that I have. As of February, I will be no longer be an employee at XXXXX. I’ve decided to become a consultant for another company and will be contracted out for at least the next 18 months. My questions relate to whether I would be eligible to claim home office expense being that I will now be self employed. My situation is that I will be renting out an office in a building downtown that will be used to store some files, meet with clients and some other administrative tasks. I also have a room in my home that is solely used as a home office which I do most of my day to day work, taking calls, emails, writing reports, etc. I use the downtown office, on average 2 days a week, while I use my home office the other 3 days a week. Would I be able to claim the downtown rental expense and a home office expense? And what types of expenses could I claim as home office expenses?

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Hi XXXXX,

Thanks for your email.

Generally speaking, self-employed individuals must meet certain criteria to claim an expense for use of a home office. These are:

1)      The home office is your principal place of business or

2)      The home office is used exclusively for the purpose of earning income from business and isused on a regular basis for meeting clients or customers with respect to the business.

So in your situation, since you work 2 out of 5 days in the downtown office, on the surface it seems as though your home office is your principal place of business. To meet the ‘principal place of business’ you would generally need to, if needed, prove that your home office was your main place of business. Although, I have limited information, given that you work more than 50% of your time at your home office it seems as though your home office is the principal place of business. Assuming that your home office is used for all, or the majority, of the day to day business operations and the downtown office is mainly only used to meet clients occasionally and to store files, there is a reasonable argument which would say that you meet the first criteria above and therefore could claim a home office expense as well as a rental expense on your downtown office.

Since you only need to meet one of the criterion’s  if on further discussion we were to determine that you didn’t meet the principal place of business requirement, you may still be able to claim the home office expense if you met the second criteria. To meet this criterion you would need to be using the home office solely for business purposes (not for personal use) and be meeting clients or customers at your home office. Since it’s seems like the purpose of the downtown office is to meet clients, you would not meet the second criteria. If you do meet with clients, on a regular basis, at your home and the home office is used solely for business purposes, it is very possible that you would be eligible to claim a home office expense.

When claiming a home office expense, it will generally be based on the square footage of the office as a percentage of the whole house or condo square footage. So a 210 square foot office in a 1,400 square foot property would result in the ability to claim an expense equal to 15% of the following expenses:

1)      Mortgage interest paid (not principal portion of payments)

2)      Home Insurance

3)      Property Taxes

4)      Electricity

5)      Heat

6)      Water

7)      Strata Fees

8)      Certain Home Maintenance expenses

9)      Rent (if you rent your home)

Please feel free to contact me to discuss your situation further or to ensure that the work that you perform at your home office would meet the principal place of business criteria.

Tony Theaker

tony@hutcheson.ca

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