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Thread: Day Care Taxes

  1. #1
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    Feb 2010
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    Default Day Care Taxes

    I run a daycare and have done the below calculation.

    Danny runs a daycare in his home weekdays from 7:00 a.m. to 5:00 p.m. (10 hours out of a 24-hour day.) The children use an area of 35 square metres. The house is 100 square metres, and the annual home expenses are $5,800.
    The calculation is as follows:
    (10 24 hours) x (35 100 metres) x $5,800 expenses = $845.83
    The daycare only operates five days a week, so Danny has to do another calculation.
    $845.83 (5 7) days = $604.16
    Danny can deduct a total of $604.16 for home expenses.

    I have used this calculation to find out my home expenses.

    On the T2125 form under Calculation of business use of the home expenses, I don't know what to input there. For example if my total expense for Electricity for the year was $1209.87, do I need to do another calculation before inputting a number there?

  2. #2
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    strongmommy's Avatar
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    Sep 2006
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    Hi there,

    Good on you for doing those ridiculous calculations CRA offers as an example! Essentially, the example is trying to come up with a % of your costs that relate directly to your home expenses that you use for your business. In the example you've used from CRA, the deduction of 604.16 is really just 10.4% of the total costs for the year of $5800 (when you divide 604.16/5800 = .1046155)

    You could go through this calculation for each and every expense if you wanted to .... or you could do it once and apply that percentage to each of your home expenses. That's what I would do .... because it's efficient and there is no real material difference.

    Not sure if you're using a tax software program or doing by hand .... but on the T2125 in the bottom section where it says the business use of home expenses you would:

    Put the total for EACH expense (hydro, heat, property tax, interest, insurance etc) and then total them. Subtract out your personal portion (in the above example, since 10% is for the business, then 90% is personal and you would subtract that off the total). The balance left is what's deductible.
    Note you can't create a loss in your business using home expenses .... but you can carry them forward to the next year and use them then if need be.

    Let me know if you need more info and have fun!

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