With awareness about working from home arrangements increasing over the past few years, we have had more self-employed pharmacists asking about how to claim home office expenses, and whether or not it’s worth it.
While most pharmacists work the majority of their time at their pharmacy business, and cannot claim expenses related to maintaining a home office, individual circumstances may vary. You need to know what can be claimed, but also whether or not you are eligible under current tax rules, and be aware of any penalties you may incur.
Eligibility to Claim Home Office Expenses
Before claiming home office expense deductions, you need to be sure your home office space is eligible. Your work space must be your principal place of business, or it must be used only for the purposes of earning business income, which you use on a regular and ongoing basis to meet customers or patients.
What Home Office Expenses Can Be Claimed?
If you have an eligible work space, you can deduct a percentage of your home’s maintenance costs. This includes home insurance, maintenance and minor repairs, utilities like electricity and heating, and rent. A percentage of property taxes, mortgage interest and capital cost allowance can also be claimed.
You need to determine the percentage you can claim, by calculating what percentage of your home’s total area is taken up by your dedicated work space or office. In general, for a reasonable calculation, take the area of the room that your work space is in, and divide it by the total area of the house.
If the area is used for both your business and personal purposes, you need to also calculate how many hours in the day you use if for business, divide by 24 hours and multiply that number by the business portion of your total home expenses. This is the amount you can claim for your home office expense deduction.
Be sure to not include business expenses when deducting home office expenses. Telephone and home internet access fees, office supplies such as pens and paper clips, and such expenses are business related, but not considered work space expenses. As a result, they are not eligible to claim as a home office expense, but can be deducted as a regular business expense.
With these, only what is used for business can be deducted. If not specifically tracked, you can prorate to determine the portion of business usage.
Temporary Flat Rate Method
During Covid, when many people shifted to work from home, there was a temporary flat rate method, however, for an ongoing basis, CRA’s regular requirements and calculations for home office expenses will need to be followed.
Can Pharmacy Owners and Self-Employed Pharmacists Deduct Home Office Expenses?
After understanding what can be claimed and when, it becomes more apparent why most pharmacy owners and self-employed relief pharmacists likely do not qualify for home office expense deductions.
We typically recommend not trying to claim a home office deduction to our pharmacist clients, because the vast majority don’t work at least 50% of the time at home, and don’t see their patients or clients at home.
If you have any other business activities that are managed from a home work space, including managing rental properties, your situation may be different, and you may be able to claim these expenses and justify them.
However, for most pharmacy owners or self-employed pharmacists that don’t have other business activities that can help justify home office tax deductions, it’s not worth trying to claim this. While you are free to try to claim a home office tax deduction, you may get audited by the CRA, and it can be very difficult to justify any home work space claims by a pharmacist to the CRA.
What Could the Penalties Be?
If you try to claim these expenses, and the CRA denies them, there may be penalties, including paying back any tax savings you benefited from when claiming the deduction. You will typically also pay a 50% penalty of that tax you owed, plus interest dating back to the year in which the claim was made.
Other Deduction Opportunities
There are also other employment expenses, including motor vehicle expenses, that can also be considered when looking for deductions.
Pharma Tax can help you with overall tax planning, to lower your business and personal taxable income, with a broader perspective to see what strategy is best for both your business and your personal taxes. We’ll explain our strategies, so you can make informed decisions, and grow your wealth.