Business-use-of-home expenses

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https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/daycare-your-home/deducting-your-business-expenses/business-use-home-expenses.html

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Business-use-of-home expenses

If you use your home for your daycare business, you may be able to claim part of the home expenses. These expenses include:

  • public services (electricity, water)
  • heat
  • insurance
  • maintenance
  • mortgage interest
  • property taxes
  • rent

Calculate the part of the total expenses related to running your home that you use for business and the part that is for personal use. To calculate the area used for daycare and the expenses that relate to daycare, you need to use a reasonable basis. Divide the area used for daycare by the total area of your home.


Example


Sonia has a daycare in her home and uses the basement only for this business. The daycare area is 20 square metres and the total area of her home is 120 square metres. Sonia's annual household expenses are $6,000.

She calculates the deductible part of her allowable expenses using the following formula:

Area used for business divided by the total area of the home multiplied by total expenses.

The calculation is as follows:

(20 ÷ 120 square metres) × $6,000 in household expenses = $1,000

Sonia can deduct $1,000 of her household expenses as business-use-of-home expenses.

You will have to further reduce the amount you can deduct if the area is used for both your daycare and personal living.


Example


On weekdays, James runs a daycare for 10 hours a day. The children use an area of 35 square metres. His home is 100 square metres and his annual home expenses are $5,800.

The calculation of his home expenses is as follows:

(10 ÷ 24 hours) × (35 ÷ 100 square metres) × $5,800 in expenses = $845.83

The daycare only operates five days a week, so James has to do another calculation:

$845.83 × (5 ÷ 7 days) = $604.16

James can deduct $604.16 of his household expenses as business-use-of-home expenses.

The amount you can deduct for business-use-of-home expenses can't be more than your net income. You can't use home expenses to create or increase a business loss.


Note


Any expenses that you can't use in the year because they would create or increase a business loss can be claimed in a future year in which you use your home for daycare.

For more information on reporting business-use-of-home expenses on Form T2125, Statement of Business or Professional Activities, go to Business-use-of-home expenses.

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Date modified:
2024-05-30