What expenses can one claim against professional (realtor) income?

[alanbrenton]

If I were to become a part-time realtor (with a full-time day job), what kind of expenses (mortgage interest, vehicle lease , housing cost, etc.) can I deduct if I use my entire basement as my office (to work and entertain clients and the use of the basement will be for this alone)?

Would all other home-based business work the same way in terms of expense deductions?

Is there a link to a website or the CRA which can give more details on allowable deductions?

With regards to capital gains exemption for a primary residence property that's been sold, is it only when I claim CCA (capital cost allowance) that part of the capital gains will be taxable or are there other situations that can give rise to this partial loss of capital gains exemption?

Thanks so much.

[sslinn]

http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-07-e.pdf

I do believe it is just with CCA that you lose a portion of your principle residence status. The above link should answer all your questions.

[alanbrenton]

http://www.cra-arc.gc.ca/E/pub/tg/t4002/t4002-07-e.pdf

I do believe it is just with CCA that you lose a portion of your principle residence status. The above link should answer all your questions.

Thanks so much sslinn!

[mr_raider]

Speak to an accountant before hand. A 1 hour session should greatly clarify what can and can not be deducted. Most people far overestimate what they can deduct, particularly as it relates to motor vehicles, home expenses and computer equipment. Hold off a little before you start leasing cars.

[pitz]

Yeah I think claiming the entirety of your basement for 'entertaining' probably would be somewhat far-fetched as well.

[alanbrenton]

Yeah I think claiming the entirety of your basement for 'entertaining' probably would be somewhat far-fetched as well.

Thanks Pitz. The basement is not just for entertaining clients alone but could be used for that purpose. It is more so a study/office area. If I move into a house or townhome with an unfurnished basement, it's going to be one open area. With this in mind, I might as well make use of the entire area rather than partition it so I can deduct a bigger portion of the expenses.

[rb]

you also have to look at whats reasonable gievn your income - if you show very little income but massive expenses - you will get audited. I have a very good accountant who does my taxes for me (he's located off Dixie road in Miss) PM me and I will send you details - he does accounts for lots of realtors and knows his stuff.

[brunes]

Thanks Pitz. The basement is not just for entertaining clients alone but could be used for that purpose. It is more so a study/office area. If I move into a house or townhome with an unfurnished basement, it's going to be one open area. With this in mind, I might as well make use of the entire area rather than partition it so I can deduct a bigger portion of the expenses.

If you are using our home for an office or for entertaining clients you can legally only deduct the portion of the home you are using and the portion of time you are using it for.

IE if you are using 300 square feet of your 1500 square foot home ( 20% ) for 40 hours / week ( 23% ) then you can claim 20% * 23% = 4.6% of your mortgage costs. Claiming any more is tax fraud because the other time you were using it as part of your residence.

[alanbrenton]

If you are using our home for an office or for entertaining clients you can legally only deduct the portion of the home you are using and the portion of time you are using it for.

IE if you are using 300 square feet of your 1500 square foot home ( 20% ) for 40 hours / week ( 23% ) then you can claim 20% * 23% = 4.6% of your mortgage costs. Claiming any more is tax fraud because the other time you were using it as part of your residence.

Brunes, good point. But what if the only purpose of the unfurnished basement is for office use, would I be able to claim 100% use of that? If no one is using the basement (since it is unfurnished for the most part), then how can it be treated as part of the residence the rest of the time? Would the CRA link above speak to this "portion of time" in detail?

If what you say is true then it really isn't worth while to set up a home-based business for tax deduction purposes as the most you could claim as "portion of time" would be 16 hours (and this is already pushing it) unless you can prove you don't sleep at all.

Anyone with experience claiming a portion of the home as office expense is welcome to add more information here. Thanks.

[SpillOnAisle9]

Anyone with experience claiming a portion of the home as office expense is welcome to add more information here. Thanks.

My CA only lets me claim to a maximum of 25%.....not sure if that limit is
imposed by CRA or it's a wild-ass guess on his part to help prevent an
audit.

[brunes]

Brunes, good point. But what if the only purpose of the unfurnished basement is for office use, would I be able to claim 100% use of that? If no one is using the basement (since it is unfurnished for the most part), then how can it be treated as part of the residence the rest of the time? Would the CRA link above speak to this "portion of time" in detail?

You can claim anything you want. But in an audit the burden of proof would be on you to show that you never used that space for personal reasons. It is a lot simpler and easier to prove the percentage of time it *was* used for office work (through documenting your activities) than it is to prove that it was never used for personal reasons during your off hours.


If what you say is true then it really isn't worth while to set up a home-based business for tax deduction purposes as the most you could claim as "portion of time" would be 16 hours (and this is already pushing it) unless you can prove you don't sleep at all.

This is part of the huge misunderstanding among the general public that pitz and raider are talking about, and why you really need an accountant if you are planning this. The CRA is not in the business of making "setting up a home based business" a tax shelter. If it was as easy to deduct home business expenses as the public at large thinks it is then everyone would do it. I mean I work from home a few days a month and telecommute, does that mean I can claim that percent of my house and internet expense? Of course not. Not unless I take the time percentage into account, which makes it not worth the hassle when you also consider the record keeping.

Really, if you want to do this, you need a door on the basement with a lock and literlaly never go in there except when you are working, and keep records of this. Then you are covered in case of an audit.

[dutchca]

Work space in home for commissioned employees info:

http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/ncm-tx/rtrn/cmpltng/ddctns/lns206-236/229/cmmssn/hm-eng.html

You must meet one of these 2 criteria to claim the expenses. Basically, it would be difficult to prove #1. #2 would depend on the definition of regular and continuous - sounds like a dedicated room that you would use ONLY for meeting clients. Probably no Act definition for reg. & cont., so common law would prevail. Please note - commissioned sales people cannot deduct mortgage interest.

1 - The work space is where you mainly (more than 50% of the time) do your work;

2 - You use the workspace only to earn your employment income and on a regular and continuous basis for meeting clients or customers.

Quote from Brunes above:

IE if you are using 300 square feet of your 1500 square foot home ( 20% ) for 40 hours / week ( 23% ) then you can claim 20% * 23% = 4.6% of your mortgage costs. Claiming any more is tax fraud because the other time you were using it as part of your residence.

I have never seen the personal use portion broken down by hours, even in practise - in prastise, 99.9% of tax preparers would use the 20%, but not break it down by hours. If one meets criteria #1 or #2 above, CRA has administratively accepted that the room would be a home office and you can base the calculation of business use on the square footage of that room, that being 20% in your example.

[sslinn]

http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-06e.pdf

One could argue that realtors are self employed. Best to talk to a tax professional.

[brunes]

2 - You use the workspace only to earn your employment income and on a regular and continuous basis for meeting clients or customers.

That is the kicker, without the record keeping I am talking about there is no way to prove a given space is used only yo earn employment income, and not used for all kinds of other stuff.

Audits are not fun, you want to CYA. And if you're a small business owner or contractor claiming housing expenses you are much more likely to get audited, it is one of the many red flags the CRA looks for.

[dutchca]

http://www.cra-arc.gc.ca/E/pub/tg/rc4110/rc4110-06e.pdf

One could argue that realtors are self employed. Best to talk to a tax professional.

Going a step further - CRA info on Real Estate sales people employed vs. self employed:

http://www.cra-arc.gc.ca/tx/hm/rlstt-eng.html