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  1. #1
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    Default How do we charge our biz for home office expenses?

    We have an incorporated Company. The main office is located in our home. The business does purchase all supplies/equipment etc. but we pay for the long distance, fax line etc.

    We are wondering how we can pay ourselves something for use of the space & utilities (other than reimbursing long distance etc). I.E. $xxx amount of rent per month. Would DH & I need to charge GST, thus requiring us to get a GST number?

    Thanks!

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    Hi there,

    You have a couple of options - which one makes the most sense depends on the type of income you're earning (active business income vs. investment income) in the business and your personal tax situation - but things to consider:

    A. You can charge the company a reasonable rent for the space - you'd then have to claim it personally but the company would get the deduction. This makes sense if you have enough personal deductions to eliminate your own personal taxable income. If the company is earning 'active business income' it's being taxed at a low rate (lower than the lowest personal rates) so it wouldn't make sense if you don't have enough personal deductions because you'd be paying tax at a higher rate personally than the deduction is getting you through the company. You can get fancy as an 'employee' of the business by then taking employee deductions for working from home but it's a hard sell to argue the company requires you as an employee to work at home when you're also a shareholder.

    B. Same as the above option - but you wouldn't need to claim it personally if you have a shareholder credit (money you've given the business). Instead you'd simply expense the rent charged to the company and reduce the amounts the company owes you through the shareholder account. This option isn't really a long term solution - but it works right now as a way of repaying you from the company and getting a corporate deduction right away.

    You don't need to charge yourself GST - because you're 'related' to the corporation (you control it) and I'm assuming the business is earning active business income.

    How much you charge is subjective - but it should be 'reasonable' which is CRA speak for what portion of the room is used all the time for the business and which portion you can reasonably allocate to the utilities etc (that are clearly not personal).

    So much of what you should do depends on other factors so this is really just a starting point. Please don't hesitate to let me know if you have more questions.

    Thanks

  3. #3
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    Wow! Thanks for taking the time to respond.

    It is an active business. We know how much of the space is allocated to the biz because come time for the corporate return we have to give our accountant the annual amounts for the household utilities & property tax. I guess that is for the biz to expense those amounts, but we never get reimbursed...not a major deal but we are buying a new home and a major factor in our search is based on having an appropriate home office area. So we think maybe we should get a little something for that.

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