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I work as an independent contractor and sometimes do a little work from home. I can write of part of my home rent for working from home. I am trying my best to estimate accurately for what percent of time and space I use related to business. I'm curious, how could the tax department ever know if someone's telling the truth or not? It's not like they could let themselves into your home to see which portion of the space could be considered a home office? Has anyone ever been audited for this before? Knowing how they would audit may help me estimate more precisely.

I have a desktop so it's always in one room, but what if someone had a laptop they just used anywhere in there home?

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    I don't think you would be audited just for this. If you are audited, you may be asked to justify those numbers as you would any other number on your tax return.
    – Rupert Morrish
    Nov 5, 2019 at 22:56
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    An office comprises a lot more things than a computer. Presumably there's a work space but there would also be storage. I have a laptop so I can work from the couch, but I still have file cabinets and a desk also.
    – quid
    Nov 6, 2019 at 0:51
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    @quid There are many professions that don't need a desk, storage space, etc -- a fiction author, for example, needs little more than a laptop or other device to write with, yet they could still claim a large room as home office space because they need quiet and isolation.
    – Carey Gregory
    Nov 6, 2019 at 1:26
  • @CareyGregory, that's fine, then that space is work space. My point is just because you can move a laptop around doesn't mean you don't have work specific items in a work specific space in a home regardless of what things are in the work specific space.
    – quid
    Nov 6, 2019 at 1:37
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    @quid Right, we don't disagree. I'm just pointing out that OP's question is a good one. I could claim a portion of my home as office space when in fact I don't reserve it for that purpose at all. How would the IRS determine that I'm lying?
    – Carey Gregory
    Nov 6, 2019 at 1:58

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I have been audited, but that was after we were incorporated. The business rents part of the house from the humans, who declare the rent as income and deduct hydro, insurance etc for that fraction of the house. The written Canadian rules are very clear that you can do it by square feet, by "one room out of 5 so 20%", or anything else that seems reasonable. We don't depreciate the house as an expense since that would mess with our taxes when we sell it.

From talking to other people who do this it seems like reasonable claims will be accepted and unreasonable ones will be checked with a quick audit. If you write on a laptop, you don't need 95% of a 5000 square foot house with only 5% for non business activity, right? (I do know one person who, on getting a very high valuation for his home property taxes, double what he thought it was worth, sold it to his company who then let him live in it at a drastically reduced rent in exchange for being the "super" and maintaining it. I have a feeling he was eventually audited. Don't do that sort of thing and you'll be fine.)

It doesn't matter that you could take your laptop anywhere or even that you do take your laptop anywhere, or that you can take a phone call in any room. While our audit was underway we left the office, which has desks and office chairs and filing cabinets and whiteboards, to go get certain more confidential files that the auditor wanted, and there was no "aha you do part of your work in the rest of the house as well!" moment because that's not a thing. What is a thing is, do you use this space to work in? And if you do, you do.

As to whether you use the room for anything else, if it is your main place of business it is ok to also use the room for something else. If you have a main place of business elsewhere then this home space must be exclusively for the business.

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  • Out of curiosity: can you claim, say, half a room in Canada? (Here in Germany, one requirement is that private and business need to be clearly and obviously separated - which translates to office is in room that is not used privately. However, AFAIK, spouses can share one room for their separate businesses.)
    – cbeleites unhappy with SX
    Nov 11, 2019 at 12:37
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    Probably. There's nothing to say how you determine the square footage. I expect most people would deduct the whole room even if it also had a bed in it that guests sometimes use (eg on weekends.)
    – Kate Gregory
    Nov 11, 2019 at 13:02
  • One of the Canadian requirements is that the area you are claiming for must be used almost exclusively for work. So it's not enough to say that I use my office half the time for work, so I'll claim half of that room. It's hard to imagine a part of a room being exclusively devoted to work so half a room is probably not going to fly.
    – DJClayworth
    Nov 11, 2019 at 19:35
  • @DJClayworth that is not a requirement if it is your principal place of business. There are two criteria and you need to meet one of them. If your business has another office and sometimes you do stuff in your spare room, you can't deduct it. But if the spare room is all you have, you can. There are even instructions for pro-rating according to how many hours a day you use it for business. See the link I added.
    – Kate Gregory
    Nov 11, 2019 at 20:15
  • I stand corrected.
    – DJClayworth
    Nov 11, 2019 at 20:17
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I used to run a full-time business from my home and checked with my tax accountant before claiming the office room as an expense. She provided me with the following advise:

  • Don't use the room for anything except business purposes.
  • Use a floor plan and estimate the cost on the basis of the percentage of space used.
  • Take photos of the room showing how it's being used for work (i.e. pictures of desk, computers, printer/scanner, filing cabinets, etc.)
  • Expect that claiming a home office will put you at a higher risk of an audit(*), but that's not a problem as long as you've got everything documented.

I was never audited back then, and given how underfunded the IRS is lately, I would expect it to be even less likely today.

*But frankly, as an independent contractor, you're at a higher risk of an audit anyway than a typical W2 worker.

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    As another ex-home worker, I will emphasize: Don't use the room for anything except business purposes this is what gets most people. It needs to be, literally, a room that is 100% for work purposes. You can't sit at a desk in your spare bedroom two days a week if you also use it for watching TV or working out the rest of the week. You can't claim a portion of your kitchen because you sit at your kitchen counter with your laptop. You can't claim your basement if you've got a pool table down there. And so on.
    – dwizum
    Nov 8, 2019 at 21:26
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    Note that the question is tagged Canada so what the IRS does is not super relevant
    – Kate Gregory
    Nov 9, 2019 at 5:16
  • I will note that HMRC (UK tax authority) is (or at least, was) much more relaxed about whether the room was solely for work purposes.
    – Martin Bonner supports Monica
    Nov 11, 2019 at 11:08
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Actually this is one of the items that triggers an audit. You list percentage of house used. Sure they have internal checks that can do some self checking. Like a 2500 sq ft home, 2 adults 3 kids and you put down 1/3 the house and half the utilities: that will trigger an audit. If the person was single and did all work from the home. I have always had a room home office and spent the bulk of the time I am home working. I have never written anything off. But I have an office.

You have the burden of proving it. So make sure you overly document. Get a seperate internet account. If you get deliveries at the home work related. Document make a folder. If you get audited. Document. So much can be done from the home these days. Customers have no idea you're not in the office. But then you don’t need to be. Employer does not have to use office space for you, a desk set up. If they pay gas that goes away. If you're home you could save some on babysitters.

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