Homebased Businesses and Taxes

Do you have a homebased business? Are you aware of the eligible expenses at your disposal to reduce your taxes owing? To start, a portion of your property taxes, your mortgage interest, maintenance, electricity, heating, internet and phone expenses can be used to lower your profit and therefore your tax owing if you use a home office. We generally discourage people to depreciate their primary residence for tax purposes because it could generate a sizeable taxable gain when you sell your house.

If you drive your vehicle to meet clients or travel to jobs (e.g. a plumber driving to a job), your vehicle financing interest, fuel, oil, insurance, registration, lease payments, depreciation of your vehicle, parking and maintenance can be used to lower your taxable income. It is important to note that proper record keeping is necessary in case CRA audits or disallows some or all of your expenses.
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For each business-related trip, you must keep a record of the following items:

Date Destination Purpose Number of kilometers you drove At the beginning of the year, you should record the odometer reading and also at the end of the fiscal year. If you change motor vehicles mid-year, you must record the date of the change as well as the odometer reading at the time of the switch.

A simplified logbook can be used as well after establishing one complete year’s business use of a vehicle. After the complete year, you should keep a complete three-months records to use to prove that the use of the vehicle used is still typical. In some situations, we have opted to use a per kilometer rate to simplify the client’s record keeping.

There are so many different types of homebased businesses and each type comes with its unique eligible expenses. We would be happy to discuss them with you! Contact Us.