One of the benefits of having a home based business (for freelancers, self employed contractors and small business owners) is that you can deduct the expenses relating to the space that you use to work. This can result in a significant reduction in your tax bill for costs that you would incur regardless, giving you one more reason to love being your own boss.
Criteria for Deductibility:
For home office expenses to be deductible, they have to meet the following criteria:
- It has to be your principal place of business i.e. you cannot deduct home office expenses if you have another office that relates to your business, elsewhere, even if you work 22 hours a day or you check your blackberry in bed.
- The space designated as your home office is used to earn business income and/or you meet clients or customers on a regular basis. You can deduct expenses relating to the workspace in your garage which is used for home improvement projects.
No deduction shall be made in respect of an outlay or expense except to the extent that it was made or incurred by the taxpayer for the purpose of gaining or producing income from the business or property
Whether you are an individual or a business in Canada, taxes are an inescapable part of your existence. All sources of income need to be calculated, tax returns needs to be filed and taxes owing must be paid. This is somewhat facilitated if you are an employee as your employer tends to take care of the majority of remittances. Self-employed individuals, sole proprietorships, partnerships and corporations on the other hand, must account for their income and expenses , determine taxes payable and remit the appropriate amounts. Additionally, businesses are also responsible for other filings including GST/HST and QST and payroll. A lack of knowledge, imperfect accounting systems and the business of running a business sometimes interfere with the timeliness of filings. The Canada Revenue Agency attempts to curb these tardy behaviours by imposing penalties and interest on late filings as follows:
As the income tax filing deadline for the year approaches small business owners and their accountants are starting to feel the pressure. Receipts need to located, invoices entered, bank statements reconciled. Accountants’ offices are littered with shoeboxes and accordion folders while tax return checklists and missing info lists are being compiled and checked off. Google is starting to note an increase in tax related searches as business owners and accountants search for clarity on a variety of tax regulations, deductions and deadlines .
In an effort to assist business owners understand their obligations, gain a better understanding of the tax filing process and provide some structure to the chaos, I have prepared a list of some essential facts and resources that should help make the process a little more manageable:
As a chronic procrastinator I tend put all my non “attend to immediately” documents in baskets and boxes resulting in, at year end, a colourful array of documents. There are letters, bills, invoices, receipts, statements and the occasional delivery menu that did not get filtered out. The intention is to organize them, on a regular basis, in the near future. In reality, this usually does not tend to happen until the end of the year.Read More