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YEAR-END DEDUCTIONS FOR HOME-BASED BUSINESSES

By Frances McGuckin

Home-based businesses are entitled to different expense deductions than a business operating from a commercial outlet. An allowance is made for the use of an office in the home, being based on the operating costs of the home.

This often causes some confusion when year-end arrives. Coupled with the use of the home is the use of a vehicle for both business and pleasure. Once again, recording this information requires regular attention to detail.

Listed below are the available deductions and how to calculate them:

Telephone: If you use a residential telephone line for business, you cannot deduct the cost of monthly line rental. Long distance phone calls including GST, cellular phones and pagers used strictly for business are 100 percent tax deductible.

Office space: To claim office-in-home costs, your office must be the licensed address and head office of the business. Keep files on annual household costs, such as mortgage interest, rent, property taxes, hydro, insurance, repairs and maintenance. Total these expenses for the year in each category.

Measure the space used by the business and the overall square footage of the home. You can deduct the business portion as a percentage of overall costs. However, this deduction can only be used to reduce taxable business income to zero and cannot create a loss. It can be carried forward and used in a year when the business is making a profit.

Vehicle expenses: If a vehicle is used for both business and pleasure, keep a mileage log with the starting and ending mileage for the year. Note each business trip and the number of kilometres traveled. The business portion is calculated as a percentage of the overall operating costs, so record all gas, repair and insurance expenses, plus lease or loan interest payments. Depreciation is calculated at year-end. The personal portion of these expenses should be treated as a draw.

Adjusting GST: When all adjustments are completed, including the 50 percent personal portion of business meals, adjust your GST account. If expenses have been recorded as a full cost to the business, then personal portions deducted, calculate the GST portion and deduct it off the GST paid. Revenue Canada takes great delight in auditing these adjustments to ensure that the GST is accurately accounted for.

If you have questions, call your accountant. If this information is compiled accurately, you will make the tax-time nightmare a little easier and help in preserving the sanity of the nations' accountants.


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Tel: 604-740-0602 Fax: 604-740-0702

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