Are you working from home – what expenses can be claimed?

Work-space-in-the-home expenses

If you meet the eligibility criteria, you can claim a portion of certain expenses related to the use of a workspace in your home as follows:

  • Expenses you paid that relate to the work space as well as other areas of the home. You can claim the percentage of those expenses that relate to the work space.
  • Expenses related to the work space only. You can claim the total amount of the expenses if the amount paid is reasonable.
  • Expenses related to a part of the house that you did not use as a work space. You cannot claim any part of those expenses.

Can be claimed:

All salaried employees and commission employees can claim:
  • electricity
  • heat
  • water
  • utilities portion (electricity, heat, and water) of your condominium fees 
  • home internet access fees 
  • maintenance and minor repair costs 
  • rent paid for a house or apartment where you live 
Commission employees can also claim:
  • home insurance
  • property taxes
  • lease of a cell phone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning commission income

Cannot be claimed:

  • mortgage interest
  • principal mortgage payments
  • home internet connection fees
  • furniture
  • capital expenses (replacing windows, flooring, furnace, etc)Footnote5
  • wall decorations

Office supplies and phone expenses

If your employer requires you to pay for office supplies or certain phone expenses, you may be able to claim those expenses.

Although you can claim these expenses, they are not related to the physical work space in your home. They are claimed on a different section of Form T777S or Form T777

Limitations on work-space-in-the-home expenses

The work-space-in-the-home expenses you can claim are limited when:

  • you work only a part of the year from your home:
    • You can only claim the expenses you paid in the part of the year you worked from home. You cannot claim the expenses you paid for the whole year.Example: Multiple periods working from home
  • you have multiple income sources:
    • You can claim work-space-in-the-home expenses only from the income the expenses relate to, and not from any other income.
  • your expenses exceed your income:
    • The amount you can claim for work-space-in-the-home expenses is limited to the amount of employment income that is left after you have deducted all other employment expenses. This means that you cannot use work-space-in-the-home expenses to create or increase a loss from employment. If you cannot claim all your work-space-in-the-home expenses in the year, you can carry forward the expenses. You can claim these expenses in the next year as long as you are reporting income from the same employer. However, you cannot create or increase a loss from employment by carrying forward work-space-in-the-home expenses.
    • If you are a commission employee, you may not be able to claim your total work-space-in-the-home expenses if they exceed your commission income. T

How to dispute a tax decision with CRA

Speak to the Canada Revenue Agency when you disagree with a decision

Some disagreements are a result of a lack of information or miscommunication. Before you formally dispute a CRA decision, contact the CRA if you have new or additional information to help the CRA with a decision, you can request an adjustment. This often resolves the disagreement.

After talking to the CRA, you may not be satisfied with the explanation. You may think the CRA has misinterpreted the facts or has not applied the law correctly. If you find yourself in one of these situations, you can request a formal review.

You have the right to a formal review

You have the right to a formal and impartial review if you believe we have misinterpreted the facts or have not applied the law correctly. You can file an objection to request a formal review of your case.

In most cases, you have to file a notice of objection within 90 days from the date on the notice of assessment or notice of determination. When filing a notice of objection, you have to submit the facts, reasons, and documentation in support of your position.

Where an objection is filed, an officer will be assigned to the file. This officer will conduct a preliminary review of the facts and issues relevant to your situation. As part of this review, you or your authorized representative may be contacted to discuss the matter and to get more documents and details. The officer will then consider the information and make a decision.

You have the right to appeal following a formal review, if you are not satisfied with the decision reached during the review, you can appeal or seek a judicial review from the appropriate court or, for certain matters, to the Canadian International Trade Tribunal.

Legislation guides the appeals process, determining the Court or Tribunal you deal with and what process you will follow. Information is available on how to file an appeal to the Court depending on your circumstances.

Note that the Taxpayer’s Bill of Rights gives you the right not to pay income tax amounts in dispute until you have had an impartial review by the CRA or, if you have sent an appeal, until the court has issued its decision. However, interest charges will continue to accumulate during this period. Also, in certain circumstances, the CRA can take collection action even though an objection or appeal has been sent. These circumstances include, namely, cases where an amount is in jeopardy, where the amount assessed relates to GST or source deductions, as well as cases where the taxpayer is a large corporation.

If you disagree with the Income Tax Act or other tax legislation matters, contact the Department of Finance Canada. The CRA administers tax legislation whereas the Department of Finance Canada is responsible for developing tax laws.

COVID-19 Financial Relief – Canada Worker Lockdown Benefit beginning October 24, 2021

Details for the new benefit: 

  • $300 a week.
  • Strictly available to workers whose work interruption is a direct result of a government-imposed public health lockdown.
  • Available until May 7, 2022, with retroactive application to October 24, 2021 should the situation warrant it.
  • Accessible for the entire duration of a government-imposed public health lockdown (up until May 7, 2022).
  • Available to workers who are ineligible for Employment Insurance (EI) and those who are eligible for EI, as long as they are not paid benefits through EI for the same period. 

Individuals whose loss of income or employment is due to their refusal to adhere to a vaccine mandate would not be able to access the benefit.

Temporarily stopping business operations – Tax filing obligations

GST/HST

If you temporarily stop your business, you must continue to file GST/HST returns even if your income is zero for the period.

If you permanently stop your business, go to Close a GST/HST account.

Payroll

If your business stops operating temporarily, call CRA at 1-800-959-5525. Otherwise, CRA will expect you to continue to remit payroll deductions and file returns.

When your business stops operating, remit all Canada Pension Plan (CPP) contributions, Employment insurance (EI) premiums, and income tax withheld to your tax centre within seven days of the day your business stops operating.

Complete and file the necessary T4 slips and T4 Summary electronically or send them to the Jonquière Tax Centre within 30 days of the day your business ends. Give copies of the T4 or T4A slips to your former employees.

You have to calculate the pension adjustment (PA) that applies to your former employees who accrued benefits for the year under your registered pension plan (RPP) or deferred profit sharing plan (DPSP).

Prepare and give a Record of Employment (ROE) to each former employee.

Corporate income tax

You must continue to file T2 corporate income tax returns until your corporation is dissolved by the government body/incorporating authority that governs the affairs of your corporation (Innovation, Science and Economic Development Canada or the province/territory).

Import/Export

No action is required if you suspend operations temporarily.

How do you bring your personal assets into your business

You may find yourself in a situation where you would like to transfer personal assets to your business.

The rules differ for each type of business structure.

Sole proprietorship

For income tax purposes, you have to transfer personal property to a sole proprietorship at its fair market value (FMV).

The FMV of the assets is the opening undepreciated capital cost (UCC).

Partnership

For income tax purposes, you can transfer your personal property to a Canadian partnership for an elected amount.

This amount may be different from the FMV, as long as you meet certain conditions. The elected amount then becomes your proceeds for the property transferred, as well as the cost of the property to the partnership. For more information on transfers of property, go to Interpretation Bulletin IT-413, Election by Members of a Partnership Under Subsection 97(2).

If the elected amount is greater than the original purchase price, you must report the difference as a capital gain on your income tax and benefit return.

Corporation

For income tax purposes, you can transfer personal property to a Canadian corporation for an elected amount.

This amount may be different from the FMV, as long as you meet certain conditions. For more information, go to Interpretation Bulletin IT-291, Transfer of Property to a Corporation under Subsection 85(1), or Information Circular IC76-19, Transfer of Property to a Corporation under Section 85.

If the elected amount is greater than the original purchase price, you have to report the difference as a capital gain on your income tax return.

Note

You can claim an input tax credit (ITC) for GST/HST included in your assets. You calculate this ITC based on the basic tax content of the assets you transferred to your business.

How to change your personal income tax return after you file it

If you think that the income tax and benefit return you filed for the tax year is missing important details such as the Home office expenses for employees or you made a mistake, you don’t need to file a new return, these are the steps to follow:

Wait for your notice of assessment

Whether you filed online or mailed your Income tax return, you need to wait to receive your notice of assessment, which will be issued to you by the Canada Revenue Agency (CRA). After you receive your notice of assessment, you may submit an adjustment request to the CRA. 

Requesting changes to your tax return

  • Request changes Online
    The fastest, easiest and most secure way to change a return is to use the ‘’Change my return’’ option found in the CRA’s My Account or to use ReFILE. If you cannot request changes online because your return is still being processed, you can wait a few days until it has been assessed and then use one of the options in How to change a return
  • Send an adjustment request form
    If you prefer, you can complete Form T1-ADJ, T1 Adjustment Request, and mail it to your tax centre, together with all your supporting documents for the change(s) you want to make.

Tax credits

If you don’t need to reduce your federal tax to zero, you may be able to transfer all or part of certain tax credits to your spouse or common-law partner. Please see Schedule 2 Federal amounts transferred from your spouse or common-law partner for more information.

How long will it take for the changes to be made?

  • If you submitted your request online, your change request will take about two weeks to be processed.
  • If you submitted your request by mail, your change request will take longer. Due to COVID-19, the CRA may take 10 to 12 weeks to process paper adjustments.

Keep in mind that some adjustment requests are considered complex and may take longer to process. Complex requests include situations where additional information or review is required. 

For more information on processing times, go to Service Standards in the CRA.

Online or by mail, you can request an adjustment for any of the 10 previous calendar years. For example, a request made in 2021 must relate to 2011 or a later tax year. Adjustment requests for different years should be on different forms but they can be mailed in together or submitted to the CRA at the same time.

After the CRA has reviewed your request

After the CRA has reviewed your request to change your income tax return, you will receive:

  • a notice of reassessment, indicating the changes made to your return, or
  • a letter explaining why the CRA did or did not make the changes you requested. 

Full listing of Canadian Corporate Services available on-line and costs

Please click on the links below for the various filings and services:

File annual return$12
Incorporate $200
Order uncertified copies of corporate documentsFree
Get a certificate of compliance$10
Get a certificate of existence$10
Amend articles $0 / $200Corporation key required
Pre-approve a corporate nameFree
View/change director informationFreeCorporation key required
Change registered office informationFreeCorporation key required
Add/Change additional addressFreeCorporation key required
Subscribe to annual return reminder emailsFree
Subscribe to email noticeFree
File financial statementsFreeCorporation key required
Order a corporate profileFree

Services for not-for-profit corporations

Services for not-for-profit corporations
File by-lawsFreeCorporation key required

Services for business corporations

Services for business corporations
Register a federal corporation in a province or territoryVariable costCorporation key required
Continue a business into the CBCA Express service available $200
Dissolve a corporationFreeCorporation key required
Revoke intent to dissolve$50
File a proxy circularFreeCorporation key required

Types of Business Ownership in Canada

When starting a company, it’s essential to select the business structure that best supports your goals. 

There are three types of legal structures for a business:

  • sole proprietorship
  • partnership (which is a form of proprietorship)
  • corporation

1. Sole proprietorship

sole proprietorship is informal and easily created, which is why it is the most common structure chosen by new businesses.

In this structure, the business and the operator are one and the same in the eyes of legal and tax authorities. Tax law treats a sole proprietorship as an income source for the proprietor and therefore requires that the business’s financial details be listed in a separate section of the personal income tax form.

In a sole proprietorship, the business’s money and responsibilities are the proprietor’s, and vice versa.

This presents some possibilities for tax management on the part of the sole proprietor. If the business generates a loss, that loss can be applied to reduce income gained from other sources. That is why most part-time businesses are sole proprietorships.

However, sole proprietorships have a downside in that the proprietor is personally liable for all functions and debts of the business.

2. Partnership

A partnership is similar, but instead of one proprietor there are two or more.

As with a sole proprietorship, there is no legal structure for a partnership. However, partners usually have some type of contractual agreement that governs, in percentage terms, the sharing of revenues, expenses and tasks.

When preparing their taxes, the partners apply those same percentages to their income and expenses.

3. Corporation

Corporations are more complicated legal structures compared to sole proprietorships or partnerships. Incorporation is a process in which a separate legal entity, owned by its shareholders, is formed. Incorporation creates formal ownership shares, which produces a taxation and legal distance between the company and the shareholders.

This in turn has tax advantages for the owners, who can be paid as employees of the corporation or through dividends.

Incorporation provides some liability protection for the corporation’s debts and offers some measure of protection for a company’s name. Company officers and shareholders may come and go, but the corporation exists until it is wound down.

Incorporation is most often done under a charter in the operator’s home province, but some companies that operate in many provinces or internationally, or that require enhanced credibility, incorporate federally, which is more costly and complicated.

Corporations must keep meticulous records and register the business and report corporate taxes annually

Many entrepreneurs are not interested in the idea of incorporating, at least not in the early stages of building a business or until the business starts earning income.

4 Steps to incorporate a business in Canada

Entrepreneurs who want to incorporate can do so directly online on the Corporations Canada website. Here are the four steps to incorporate:

  1. Choose and register the corporation name (company name or number).
  2. Create articles of incorporation – Basic incorporation suggests pre-determined articles of incorporation that can be modified later if necessary.
  3. Establish the initial address of the head office and board of directors. Choose an address where you can be sure you will receive any documents that are sent there, as legally it will be assumed that they have been received by the organization. You must also decide who will sit on your board of directors.
  4. Pay the fees at the registry office.