COVID has forced many business owners and their employees to work from home on a partial or full time basis. If you've been similarly affected, don't forget to claim any eligible home office expenses when submitting your income tax return for the 2021 year of assessment.
To qualify as tax deductible, home office expenditure must satisfy both a positive and negative test: the positive test (i.e. permissible deductions) falls under section 11 of the Income Tax Act, while the negative test (i.e. restrictions and prohibitions) is covered under section 23.
As far as section 11 is concerned, any non-capital expenses and losses incurred while generating an income may be tax deductible. Common home office expenditure that may qualify include rates and taxes, office equipment wear-and-tear, phone and internet, as well as repairs and maintenance.
In terms of section 23, deductions aren't permissible unless they involve a section of your home that:
1. You're occupying for the purposes of trade.
"Trade" includes "every profession, trade, business, employment, calling, occupation or venture", so any work you're performing from home in the ordinary course of your business ought to qualify.
2. You've specifically equipped for the purposes of trade.
This will obviously vary from one profession to the next, but a workstation with a computer will probably be sufficient for most deskbound owner-managers.
3. You're using regularly and exclusively for the purposes of trade.
"Regularly" is open to interpretation, but occasional work from home (e.g. every now and then over the weekend) probably won't cut it. "Exclusively" is far less ambiguous: your home office space can't be used for anything other than work, and will probably need to be a separate room.
Note that qualifying expenses may also be subject to apportionment using the ratio between the space dedicated to work and the total premises. This calculation must be based on the entire area of all buildings (not just the main residence) as well as exact floor area measurements (i.e. don't rely on estimates).
As always, check with your accountant for any additional provisions that may affect your particular circumstances. For example, section 23 also differentiates between variable and fixed income-earners, so your compensation structure may also impact which home office expenses you can claim.