If you are working out of your home, there are a number of ways you can qualify to expense some of your home expenses by claiming home office deductions on your personal tax return.

You can qualify if you are self-employed or an employee; however there are various criteria for each situation.  If you are self-employed, the workspace in your home must be your principal place of business, and you do not have another office at a second location.  The home office must be used exclusively for your business and is used on a regular and continuous basis for meeting clients, customers or patients.  Principal is commonly interpreted as more than 50% of the time.

If you are an employee, the rules are must stricter.  Similar the home office is either the place where you principally perform your employment duties, or the space is used exclusively on a regular and continuous basis for meeting people while performing your employment duties.  You can not deduct mortgage interest or any depreciation on the home if your claiming as an employee and can only claim deductions that are more maintenance related. If you’re a salesperson on commission, your deductions may include property taxes and insurance. However, other employees are not entitled to claim a deduction for these expenditures.

The portion of the expenses that you claim will normally be based on the fraction of the office space that is used out of your house our apartment.  Its common to use the square footage of the office space divided by the house square footage.  When calculating the house square footage you can usually exclude common areas like hallways, kitchens and washrooms from the total.  The expenses that you would use under this method would be rent if you are a renter or mortgage interest if you own the property (principal payments are excluded), property taxes, electricity, heat, water, gas, home insurance, cleaning, snow removal, gardening, garbage fees and minor repair costs. You will need to make sure you keep all the receipts to support the total amounts.

There are additional expenses that might be more specific to the business and using a percentage of square footage might not be the best.  These expenses could include telephone, internet, and cable all might be used at a different percentage for business than the square footage would suggest.

If you are registered for GST/HST you can also claim input tax credits for the portion of GST/HST that was paid on the house expenses that related to your business.  The GST/HST can only be claimed on expenses that GST/HST was charged, since expenses like mortgage interest and some utilities do not charge GST/HST.

Home office expenses can only be claimed against the income of that business.  This means you cannot create a loss in the business by claiming home office expenses and apply to other sources of income.  If your home office expense claim exceeds the income you can carry forward the unused balance at a later year and claim against the same business income.