Sometimes you end up working from home
I was planning to look at Office-In-Home expenses in May, but given the current situation, it stands to reason this would be beneficial to release now. We’ve seen quite a few clients (from a safe distance to practice social/physical distancing), who have been asked to work from their homes lately, and these clients might be able to take advantage of tax deductions they normally wouldn’t think about. Hopefully the information below will help people understand some of the things they should keep or look for when they are in a position where they need to devote a portion of their home for work.
1. Declaration of Conditions of Employment
The Conditions of Employment is a form that you can request from your employer that details what, if anything, you are required to personally pay to do your job (to us tax people, we know this as a T2200). In this document, section 10 is devoted to work-space-in-home deductions. It will indicate that you were required to work from home, an estimate of the amount of duties required to be performed from home, and any reimbursement you may have received for the use of this space (either included or excluded from your T4). Even if you received an allowance for working from home, you might still want to have a work-space-in-home claim, as it could be more than what you were given as an allowance or reimbursement.
2. Check for an Allowance
Just to stress this further, in section 10 of the Conditions of Employment, determine if there was an allowance and whether it was reported on your T4. If there was an allowance that was NOT reported on your T4, this amount will need to be deducted from your total work-space-in-home claim.
3. Area and Time
Since you are using only a portion of your home, and it may not be for the entire year, you need to determine how much of your home was used for the claim. Similar to how vehicle usage is based on distance travelled for work versus total, office-in-home is based on a rate of area used for work versus total, but might also be impacted by time. A daycare can end up using a good 80% of a home, but only have hours of Monday – Friday, 8:00am to 8:00pm, while an office that required a computer, desk, filing cabinets and other items might need to be setup and take up the space 24 hours a day, 7 days a week.
For Office Area Fully Used for Business, the calculation is:
Area of Office / Area of Finished Home
For Shared Areas (such as Daycare), the calculation is slightly more complex:
(Area used for Business x Hours of Operation) / (Area of Finished Home x Total Hours)
The Area can be measured in two different ways. CRA prefers the measurement by Square-Footage, taking into account all finished areas; however, it is still possible to use a Number of Rooms measurement instead. CRA only requires a reasonable basis of measurement. Therefore, if a person runs a daycare that uses 3 rooms for children to play in (750 sqft), and 1 for an office (100 sqft), open 8:00am to 8:00pm, Monday to Friday, except the office for storage and office work, and the house has a total of 6 rooms (not including bathrooms or hallways, total of 2,000 sqft), the calculation could be done in 2 ways:
750/2000 sqft x 12/24 hours x 5/7 days + 100/2000 sqft x 24/24 hours x 7/7 days = 18.39%
3/6 rooms x 12/24 hours x 5/7 days + 1/6 rooms x 24/24 hours x 7/7 days = 34.53%
In this example, the only question is whether 18.39% or 34.53% would be more reasonable. While CRA would prefer you only claim 18.39%, the 34.53% is more beneficial to you, so what is the argument to make? The difference in the calculations above is mostly due to the area between rooms and rooms not included such as hallways and bathrooms. Since these will also be partially used in operation of the daycare, some of this area should be included in the calculation. Therefore, a compromise between the two rates is likely the best option - around 25%, or on the advice of your accountant for your specific business and areas of the home.
4. What to Claim
The quick answer is everything the work-space-in-home area shares with the rest of the home. Any expenses directly related to the office should be claimed 100% (such as equipment, supplies, repairs and maintenance specifically for the office area, etc.), and anything fully unrelated should be ignored (such as cable or home phone when neither is used by the business). Here are most of the items you want to look at:
· Utilities – Heat, Electricity, Water/Sewer
· Property Tax
· Home Insurance – Special Riders for Office items should be claimed 100% (Content), but insurance covering damages such as hail, flooding, earthquake, etc. should be pro-rated
· Security
· Repairs & Maintenance – When shared, such as rewiring electrical in an old home for a fixed price where you cannot identify specific business areas
· Rent – If home is rented, not owned
· Mortgage Interest – If home is owned with mortgage. CRA does not like this, and even says you cannot claim this on their website, but we’ve never had it disputed, even in the rare cases where a client is audited.
· Condo Fees or Community/Association Fees
There may be other items that a person can claim, but it really comes down to what is reasonable, and what is fair. In some cases, a person may be able to claim areas to entertain clients, areas meant for promotion or showroom, meeting rooms, or other things. The best thing to do is ask your accountant. If you aren’t sure about what you can claim or what record-keeping you need to do, feel free to contact us at Zablocki & Associates by phone or email and we’ll help you figure it out!
C. Zablocki