If You Operate a Home-Based Business, the Canada Revenue Agency

question 98

Short Answer

If you operate a home-based business, the Canada Revenue Agency (CRA) will usually allow you to report certain "office-in-home" expenses. The portion of heat, insurance, electricity, property taxes, and mortgage interest that you may report must be (in the language of the CRA) "reasonable under the circumstances." Rose uses 2 of the 11 rooms in her home for her real estate appraisal business. The combined floor area of the 2 rooms is 36 m². The remainder of the house has an area of 147 m². Rose's total expenses in the home-related categories were $17,512 for the year. What amount will qualify as "office-in-home" expenses if the proration is based on:
a) The number of rooms used for the business?
b) The floor area devoted to business use?

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Definitions:

Opportunity Cost

The cost of foregoing the next best alternative when making a decision.

After Tax Profits

The net income a company retains after all its tax obligations have been settled.

Expected Cost

The forecasted cost of an action or decision, taking into account all known risks and uncertainties.

Expected Value

A statistical concept that calculates the average outcome of a random event when the process is repeated many times.