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  • Jan 10th, 2017 8:19 am
[OP]
Newbie
Nov 30, 2015
76 posts
3 upvotes
Vancouver, BC

Home office expenses

Dear all,

I own a corporation and I'm thinking of claiming some home office expenses for my business (20% for business).
Would this be a trouble when I sell my house and claim principal residence exemption?

Thank you
18 replies
Deal Fanatic
Aug 29, 2006
7737 posts
1626 upvotes
It shouldn't. However, the bigger issue is, if 20% is total expenses for your home, then it sounds pretty high.
The Devil made me buy it - RFD. :twisted:
Member
Mar 6, 2015
211 posts
448 upvotes
dk1998 wrote: Dear all,

I own a corporation and I'm thinking of claiming some home office expenses for my business (20% for business).
Would this be a trouble when I sell my house and claim principal residence exemption?

Thank you
A few things to note here.

1. 20% is too high. Unless it's a small condo, this doesn't pass the smell test.
2. It is possible to deduct home office expenses, but you will need to fill out form T2200
3. If you deduct capital cost allowance, it would have a negative impact on the principal residence exemption
Penalty Box
Aug 3, 2006
192 posts
40 upvotes
Arviat
what is a reasonable % for a house that can be claimed to be used for home office?
I was told 25% is okay
MTLCPA wrote: A few things to note here.

1. 20% is too high. Unless it's a small condo, this doesn't pass the smell test.
2. It is possible to deduct home office expenses, but you will need to fill out form T2200
3. If you deduct capital cost allowance, it would have a negative impact on the principal residence exemption
[OP]
Newbie
Nov 30, 2015
76 posts
3 upvotes
Vancouver, BC
Thank you very much hdom and MTLCPA.

I own a one bedroom one den condo (800 ft). I work from home and meet my clients at home as well.
Is 20% too high? Is there any commonly used % for house / condo unit?

Appreciated
Deal Fanatic
Aug 29, 2006
7737 posts
1626 upvotes
Should be based on square footage. If you really use 20%~25% of the area of your home/condo to meet clients then by all means.

However, for a normal single family home then 20% would be much harder to justify.

Also, while using a straight % may sound easier to calculate, however it may not harding to pass the smell test. It is often considered better to breakdown the expenses and adjust the %.

For example, if you need your phone and internet for your business, that should be 100% and not just 10-20%.
The Devil made me buy it - RFD. :twisted:
Penalty Box
Aug 3, 2006
192 posts
40 upvotes
Arviat
what about living room for meetings/clients and one bedroom for home office? that is easily 25-35% of a house by sq feet.
that is why I am a little surprised even 20% seems high.

hdom wrote: Should be based on square footage. If you really use 20%~25% of the area of your home/condo to meet clients then by all means.

However, for a normal single family home then 20% would be much harder to justify.

Also, while using a straight % may sound easier to calculate, however it may not harding to pass the smell test. It is often considered better to breakdown the expenses and adjust the %.

For example, if you need your phone and internet for your business, that should be 100% and not just 10-20%.
Deal Addict
Apr 4, 2013
1274 posts
409 upvotes
arsenalrocks wrote: what is a reasonable % for a house that can be claimed to be used for home office?
I was told 25% is okay
It will depend upon your type of business and the actual space that you use in your home. Most people use a simple office space - 10 x 10, 10 x 12 for instance. If your house is 2500 square feet, and the office is 100 square feet, then you claim 4%.
Deal Expert
Oct 6, 2005
16759 posts
2428 upvotes
arsenalrocks wrote: what is a reasonable % for a house that can be claimed to be used for home office?
I was told 25% is okay
What % of your home do you use?

Assuming you have a 3,000 square foot house, your home office is probably about 300 square feet if not less, so that's 10%. But you're not in your office 24x7 as likely you use it for personal use as well, so let's be generous and say 12 hours per day for work (50% of 10% square footage) - so that means you can claim about 5% of your household expenses.

arsenalrocks wrote: what about living room for meetings/clients and one bedroom for home office? that is easily 25-35% of a house by sq feet.
that is why I am a little surprised even 20% seems high.
I doubt your living room is dedicated for clients and meetings. How about your home office - is it used solely 24x7 for business use? Do you have a separate computer/room off hours where you surf the web?

Here is the exact rule from the government:

7. For purposes of determining the proportion of the expenses referred to in 5 and 6 above that is otherwise deductible, these expenses should be apportioned between the employment (i.e., work space) use and the non-employment use of the home on some reasonable basis, such as square metres of floor space used. However, the reasonable basis should also take into consideration the personal use, if any, of the work space if it is one described in 2(a) above. Using such an allocation method, for example, if the work space area is 10% of the total floor space of the home, but the use of the work space is 60% employment and 40% personal, then 6% (i.e., 60% of 10%) of the total fuel expense for the home would be the amount of fuel expense that is otherwise deductible under subparagraph 8(1)(i)(iii).

http://www.cra-arc.gc.ca/E/pub/tp/it352 ... l#P30_2482
dk1998 wrote: I own a one bedroom one den condo (800 ft). I work from home and meet my clients at home as well.
Is 20% too high? Is there any commonly used % for house / condo unit?
For a condo, 20% seems reasonable... you maybe able to justify an even higher percentage depending on the layout of your unit.
Last edited by coolspot on Jan 8th, 2017 9:29 pm, edited 4 times in total.
Deal Addict
Dec 15, 2009
1352 posts
503 upvotes
Ontario
You also need to take into account the amount of time the space is used as a business which is not likely to be 24/7.
Deal Fanatic
Jul 4, 2004
9138 posts
2139 upvotes
When claiming home business expenses it maybe necessary to keep a journal of your client meetings with the dates and times noted just in-case you are audited. If you declare any amount of home business expenses you maybe called on to defend it and they will surely want some sort of proof. If you don't have anything recorded they will most certainly disallow it.
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[OP]
Newbie
Nov 30, 2015
76 posts
3 upvotes
Vancouver, BC
Thank you guys all. I appreciate it.
Deal Addict
Feb 29, 2012
2654 posts
1459 upvotes
Richmond
Also make sure you have informed your insurer that you are running a home-based business. There might not be any extra fee at all, but if you fail to notify them then you could be in trouble if something were to happen like a client being injured while visiting (e.g., stumbles over a loose carpet, burns themselves with too-hot coffee etc.).
Member
Aug 17, 2008
492 posts
210 upvotes
Quebec
MTLCPA wrote: A few things to note here.

1. 20% is too high. Unless it's a small condo, this doesn't pass the smell test.
2. It is possible to deduct home office expenses, but you will need to fill out form T2200
3. If you deduct capital cost allowance, it would have a negative impact on the principal residence exemption
OP want to deduct home expenses in the corp. I dont see the utilty of a T2200 here...
Member
Mar 6, 2015
211 posts
448 upvotes
sr79 wrote: OP want to deduct home expenses in the corp. I dont see the utilty of a T2200 here...
Not exactly, if OP is concerned about the principal residence exemption, then the home is owned personally, not through the corporation. As an employee of his own company, OP will still need a completed T2200 on hand in order to deduct home office expenses from his personal taxes.

If OP wants to deduct home office expenses within the corp, OP needs to invoice corp for the cost of the corp using a portion of his home. Corp gets the expense, but OP would need to record the income personally.
Last edited by MTLCPA on Jan 9th, 2017 1:08 pm, edited 1 time in total.
Penalty Box
Aug 3, 2006
192 posts
40 upvotes
Arviat
in the second case, say OP gets income from his Corp in the form of office rent(20% of condo fee/property tax/mortgage interest),
but OP has expense too, like condo fee/property tax/mortgage interest, so in that case how does it affect his income?

its almost like uber, you buy a car, need to put in gas, insurance, maintenance etc, and you drive for 20 hours a week making 400 bucks let's say. you are suppose to declare that as income but at the same time you should be able to deduct expense as well. and the car payment + gas+ insurance + maintenance can sometimes be way over your additional income.
MTLCPA wrote: Not exactly, if OP is concerned about the principal residence exemption, then the home is owned personally, not through the corporation. As an employee of his own company, OP will still need a completed T2200 on hand in order to deduct home office expenses from his personal taxes.

If OP wants to deduct home office expenses within the corp, OP needs to invoice corp for the cost of the corp using a portion of his home. Corp gets the expense, but OP would need to record the income personally. Not a good idea if OP's marginal tax rate is higher than his corporate tax rate.
Deal Expert
Feb 29, 2008
29034 posts
4711 upvotes
Montreal
It's a headache. I stopped doing it. 150 sq feet in a 3000 ft house is not worth the risk of an audit.
Member
Mar 6, 2015
211 posts
448 upvotes
arsenalrocks wrote: in the second case, say OP gets income from his Corp in the form of office rent(20% of condo fee/property tax/mortgage interest),
but OP has expense too, like condo fee/property tax/mortgage interest, so in that case how does it affect his income?

its almost like uber, you buy a car, need to put in gas, insurance, maintenance etc, and you drive for 20 hours a week making 400 bucks let's say. you are suppose to declare that as income but at the same time you should be able to deduct expense as well. and the car payment + gas+ insurance + maintenance can sometimes be way over your additional income.
Yes, however you cannot create a loss through home office expenses.

In the second case, corp would get the expense, OP would have personal home expenses to offset the rental income from the corp.
Deal Fanatic
Dec 12, 2009
5359 posts
2848 upvotes
Toronto
MTLCPA wrote: Yes, however you cannot create a loss through home office expenses.
Cannot a loss due to home office expenses be carried forward?

FWIW, I've claimed 30% for > 25 years and have not had a problem yet. In my situation the space is clearly set up exclusively for the business and it would be difficult to imply that it can even be used for personal purposes.

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