Did you know that the Income Tax Act limits the circumstances under which a self-employed individual can deduct the costs related to a workspace in the home? They are confined to situations where the space is used exclusively to earn income from a business and on a regular and continuous basis for meeting clients, customers or patients; or if it is the individual's main place of business.
This claim may be based on the proportionate space within the home that is used as a workplace. Eligible expenses include rent, mortgage interest, realty taxes, insurance, utilities and maintenance. It is generally not advisable to claim capital-cost allowance (CCA), on a portion of the home because that portion would then not qualify for the principal residence exemption when it is ultimately sold.
Similarly, claiming 50 per cent or more business use of the home or making major structural alterations to adapt it to business use will trigger a “change in use,” resulting in loss of the principal residence exemption.
The amount a taxpayer can claim is limited to his or her business income before deductions for home workspace. Any unused amount may then be carried forward and claimed in the subsequent year against related business income. To the extent that unused amounts cannot be claimed in the following year, they can be carried forward indefinitely to be claimed at the first available opportunity