How do I deduct work-in-home expenses under my corporation?

It’s very common for some small businesses to fully operate out of a room in the house.  If you operate as sole-proprietor you can deduct eligible work in home expenses on your personal tax return (T1). If you’re operating as corporation you can charge it as rent expense, which will reduce your corporation’s taxable income and taxes.

Some common home office expenses are: Rent, repairs and maintenance, supplies, telephone, utilities, home insurance, mortgage interest, and property taxes.

Example:

Bob is operating under 123456 Ontario Inc.  He operates 60% of his business principally out his home office which is 200 square feet. Bob’s total house square footage is 2000 square feet. This space is used exclusively for meeting clients and performing employment duties. Bob encountered the following eligible expenses for the year of 2012:

1. Repairs and Maintenance: $2500
2. Utilities – $500
3. Home Insurance- $2000
4. Property Taxes – $3500

Bob would calculate his deductible portion as follows:
(200 square feet of work space divided by 2000 total square footage of house = 10%)

Therefore, Bob can charge 10% of the above expenditures to 123456 Ontario Inc. At the end of the year 123456 Ontario Inc shows $850 of rent expense on its financial statements. Bob will write a cheque to himself for this amount.

ABOUT THE AUTHOR

ALLAN MADAN

CA.CPA.CGA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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