Business-use-of-home expenses

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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 expenses of running your home. These expenses include:

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

You have to calculate the part of the total expenses related to running your home that is for business use and the part that is for personal use. To calculate the business part you can deduct, use a reasonable basis, such as the area used for the daycare divided 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 formula:

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

The calculation is as follows:

(20 ÷ 120 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

Danny runs a daycare in his home weekdays from 7:00 a.m. to 5:00 p.m. (10 hours out of a 24-hour day.) The children use an area of 35 square metres. His house 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 metres) × $5,800 expenses = $845.83

The daycare operates only five days per week, so Danny has to do another calculation.

The other calculation would be:

$845.83 × (5 ÷ 7 days) = $604.16

Danny 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 cannot be more than your net income from the business before you deduct these expenses (you cannot use home expenses to create or increase a business loss).

Note

You can claim in a future year in which you still use your home for daycare any expenses that create or increase a loss in the year they were incurred. However, the expenses cannot create or increase a business loss for the year in which you want to apply them.

For more information on reporting business–use–of–home expenses on Form T2125, Statement of Business or Professional Activities, go to line 9945.

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Date modified:
2017-01-03

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