Home office expenses

If you are self employed and work from home, you can deduct a portion of your home office expenses. The portion of Home Office expenses that can be deducted, is determined by dividing the area of your home office, from the total area of your home.

Example :

Sam is an accountant and works out of his own home. His home office takes up 500 square feet of his 2500 square foot house (25%).  If Sam has office related expenses that total $5,000 during the year, he could deduct $1,250 ($5,000 x 25%).

The following household expenses can be deducted:

• Mortgage Interest
• Maintenance & Repairs
• Condo Fees
• Utilities

Make sure you do not claim dual purpose rooms, such as a bedroom or a kitchen. If you intend to designate a part of your house as a part of your home office, it can only be used for the purpose of business activities. The CRA is also asking home office users to submit a floor plan of their house, upon audit.

Vehicle expenses

Independent contractors can deduct the expenses related to their car, including:

• Gas
• Oil changes
• Repairs
• Toll charges
• Parking
• Insurance
• Tax depreciation (if you own) or lease payments (if you lease)

The car expenses listed above can only be deducted to the extent that they were incurred for business purposes.

For example, if you drove 50% for business purposes, then 50% of your car expenses are deductible. Keep a log to track the KM’s you have driven for business purposes.

Supplies and Tools

Supplies and tools purchased are also tax deductible.

The supplies and tools you have purchased for preforming your work are tax deductible. For example, a power drill, hammer, measuring table, stationary, a business phone, or whatever other supplies you need to buy in order to complete your job duties, depending on your line of work.

Computer and Software

Computer purchases can be deducted at a rate of 55% per year for independent contractors. Computers include desktop computers, laptops, notebook computers, tablet PC’s, as well as computer peripherals (e.g. scanner, printer, etc.).

Software is 100% tax deductible. However, only 50% of the amount can be claimed in the year that the software was purchased, and the remaining 50% can be deducted in the subsequent year.

Travel

Travel expenses can be deducted as long as those expenses were incurred for business purposes. For example, air fare and hotel accommodations to attend a business meeting can be deducted on an independent contractor’s income tax return. Trips to Disneyland with the family cannot.

Meals and Entertainment

As a general rule, independent contracts that spend on meals and entertainment can deduct 50% of those expenses. Money spent on personal meals and personal entertainment is non-deductible. However, meals and entertainment expenditures incurred for business purposes, such as meetings with clients, suppliers, and prospects, are 50% deductible. Keep your receipts as proof.

General Rule

The general rule is that any expense incurred for the purpose of earning income from business, as long as that expense is reasonable, is deductible.