Home Office Tax Deductible Expenses

One of the great virtues of starting a home business is the tax breaks you can claim. However, claiming aggressive write-offs is a sure way to attract CRA auditors. In this article, we'll look at some of the more popular home business write-offs as well as some tips on how you can legitimately claim them.

1. Keep business records
If your wish to claim tax deductibles on your home office expenses, you must get into the record-keeping mindset. You need to establish a means of keeping track of the money that is coming in and the money that is going out. Being audited is not the end of the world. However, being audited and not having the records to back up your deductions can be a nightmare.

The more detailed your accounts are, the easier it will be to face an audit. Compiling your daily reports into a monthly tracking sheet will drastically shorten the time it takes you to get your taxes together, and it will have the added benefit of providing a snapshot of your business month-to-month.

2. Write off your workspace
Writing off a home office can be particularly attractive if you have a line of work that can be neatly confined to a dedicated room. You can still write off part of a shared room, but in either case, the space is calculated as a percentage of the total house or apartment area. That percentage is applied to all the related costs, including utilities, insurance, rent or mortgage payments, and so on.

3. Update your business equipment
Office furniture, software, computers, and other equipment are all 100% deductible within the year that the cost is incurred - you don't need to depreciate. There is an upper limit and the purchases must be majority-usage (primarily used) and necessary or helpful for business.

4. Business phone and internet
If chatting with clients is a necessary part of your business, it may be worth getting a second phone line or a dedicated business cell phone, as both of these are 100% deductible. If you only converse with clients occasionally, you can still write off the costs by noting the dates, times, and reasons for the calls and then circling the items on your regular phone bill to deduct at tax time.

You can also deduct part of the cost of your internet if you use it for business. There is no absolute percentage to use, but it will be difficult to write off more than 50% if other members of your family are using it for non-business purposes. Be reasonable and pick a defensible percentage that you won't regret in the case of an audit.

5. Entertainment expenses
You can wine and dine clients (preferably paying or likely to pay clients) and get a tax break. The tendency for business owners at all levels to abuse this write-off has scared many home business owners away from claiming it. However, it is acceptable for you to take out a client for a meal and some entertainment. It will be easier to defend a $200 deduction for a client who has brought you a lot of business than the same meal for a buddy who paid you $20 for an hour's work over the entire fiscal year.

6. Take a trip, not a vacation
Have to hit the road to expand your market? Save your receipts. On business trips, your travel expenses are 100% deductible and your food expenses can be deducted at 50% of the total. Keep all of your receipts because even things like dry cleaning and tips are considered a necessary expense when you're out-pounding the pavement in new markets.

7. Automobile expenses
When it comes to automobile expenses, you can claim registration, repairs, oil changes, and gas. But it’s important you keep a log of the kilometers you are traveling for business on a daily basis, because you may need to prove how frequently you use your car for business.
 
8. Employ (not just pay) your family
You can use family members as employees and deduct their salaries as long as you account for their work and pay the going rate. If you have a business that lends itself to having a spouse and kids help out, then use that labour pool. You'll likely pay less than market rates for the help, and you can deduct insurance premiums for them as well.

9. Make justifiable deductions
Just because you have a home business doesn't mean you can go crazy with deductions. If you don't think you can face down an auditor with detailed proofs justifying the deduction, then perhaps it isn't a deduction you should be taking.

The CRA's T2125 form — Statement of Business or Professional Activities — needs to be filled out to claim these expenses. Page 3 of this form deals with the calculation of what is called business-use-of-home expenses.

Most tax software programs will let taxpayers claim home office expenses, although you may want to upgrade to a more expensive version that caters to the self-employed or small-business owners.

Working from home can result in big tax savings. But the rules are strict and the paperwork can be formidable. It might be wise for first-time claimants to seek the help of a professional.

Buying a Home During the Holiday Season

The year-end holiday season is a good time for gift-exchanging, entertaining, and general merriment. But what about buying a house? Should you try to do that in November or December, too?

If you're not picky about the home you intend to buy, the answer might be yes. Sellers tend to avoid the end of the year due to the short days, winter weather, and conventional wisdom that says buyers are otherwise occupied. But those who do choose to sell at year-end are often under pressure and highly motivated to cut a deal.

Advantages:

1. Less Competition
 Lots of families, school, and work activities, combined with the weather in many locations, lead to fewer real estate transactions over the holidays. Since fewer people are looking to buy houses, you will have less competition for your preferred house – and this gives you leverage.

Holiday home sellers often have to adjust their prices downward or make other concessions if they want to sell. Keep this in mind as you search for homes. Bargains may be available, and listed prices may be more open to negotiation.

2. Motivated sellers
People who are selling their homes over the holidays often have great incentive to sell, such as an upcoming job relocation. If a house has already been on the market for some time, that incentive is multiplied.

Companied with less competition from other buyers during the holiday season might mean you'll be able to negotiate a favourable price for a home you want to purchase.

3. Better interest rates
Due to limited demand and greater competition among lenders, you may be able to negotiate a better interest rate, during the holidays compared to other times of the year.

4. Faster closings
Generally speaking, all parties involved in the home-buying transaction have the incentive to complete it before the end of the year. Lenders want to close their books, real estate agents want to receive their commissions before the year closes, sellers want to move on to their new home and settle in for the holidays - and just like the sellers, you want to settle in as well.

Since all parties are motivated and there are fewer transactions taking place during this time, it should be easier to put everything in place for a smooth and rapid closing.

Disadvantages:

1. Fewer homes for sale
The biggest downside is the limited supply of for-sale homes, which occurs mainly because sellers are so uninterested.

If you can't find a home you like, you might be able to tap into homes that aren't on the market. One strategy is to research what brokers call "old expires," which refers to homes that were for sale several months ago but weren't sold at that time.

Another approach is for the broker to send letters to homeowners in your preferred neighbourhood, trawling for someone who's willing to sell a home that meets your criteria.

A third technique is to call brokers who sell a lot of homes in your target area and ask them about homes that aren't yet listed, but are being prepared for sale and are "coming soon."

2. Seasonally obscured defects
One pitfall in winter house shopping is that homes might have defects hidden by the snow, only to be discovered by the thaw in spring. That should be a concern for buyers in the winter season.

Snow covers a lot of things, so make sure you understand the landscaping and that the sellers aren't trying to hide something.

Photographs of the home taken earlier in the year and a home inspection can help mitigate some of the risks that a home might be listed in the snowy season to hide its faults.

3. Difficult to get professional help
Not only sellers and buyers, but also real estate professionals like to take time off from work in November and December. Realtors and mortgage brokers have friends and family, too.

That said, many pros do work during these months, precisely because they know many buyers have vacation time to devote to year-end house hunting.

Individual mortgage brokers also might take some time off at the end of the year. But it would be unusual for a mortgage company or bank to be closed any normal business day other than the official holidays.

Either way, it's a good idea to ask your agent what his or her plans are so you won't be caught off guard or left hanging if your calls or emails suddenly aren't answered as quickly as you'd expected.

If you're a serious buyer, you needn't be shy about intruding into sellers' homes at a time normally reserved for family and friends. If a seller is willing to put their house on the market during the holiday season, they really want buyers to come in.

The weather may be unfavorable, but your opportunities to buy a home around the holidays may be just as delightful. Enjoy the holiday season as you explore your options. Don’t forget to give Santa your new forwarding address!

7 Things to Consider When Renting Out a Property

Converting your basement into an apartment can be a lucrative move,  but there are many factors to consider before setting up part of your home as a rental property. Before you begin screening tenants or even setting up your listing, there are several steps you must take to avoid legal issues or nightmare tenants.

1. Do it legally
Just because you have space for a renter doesn't mean you're allowed to get one. Some municipalities don't issue permits for secondary suites. If you build one anyway, and you're discovered, you can be forced to pay fines and even dismantle the rental property. We've heard of situations where disgruntled neighbours inform the city of illegal units next to them.
Besides zoning issues, "a prospective landlord must verify that a second unit meets the requirements of the fire code". For example, are there two exits, and is the ceiling high enough? If something goes wrong in an illegal dwelling, the landlord is on the hook.

2. Get proper insurance
After deciding to rent out your property, notify your insurance company and receive proper insurance. Landlord’s insurance will protect you against damage to your property or any liabilities.

Should the property be damaged in a fire or storm, the insurance company will cover the cost of the repairs. However, many insurance claims do not cover damages caused by the tenant. Be sure to clarify your claim with your insurance agent or inquire about adding on tenant insurance.
If your insurance company isn't aware of the second dwelling, they may not pay your claim, if you make one. They certainly will not cover the tenant's possessions, and you might have a lawsuit from your tenants.

3. Understand your rights and obligations
It’s important that landlords know their rights and their tenants’ rights to avoid any lawsuits or legal issues. Canada Mortgage and Housing Corp. list extensive information for each province on what landlords can and cannot do, including information on rent, pets, and when a landlord can enter a unit when occupied by a tenant. Landlords should also consider joining a landlord’s association to stay up to date on changes to bylaws and regulations.

4. Be competitive about your pricing
Research the average pricing of rental properties in the market and set a competitive price. Avoid listing your property at the lowest rental price to attract more tenants; it will likely backfire because it will attract tenants who are only focused on price and who will leave in search of the next lower-priced unit.

5. Use Photography to your advantage
The photos you select to post with your property’s listing can make a huge difference. Poorly lit photographs, whether they are too dark or over-exposed, can make a space look unappealing and unwelcoming. Photos that are blurry, grainy, or low resolution can be difficult to make out and fail to properly showcase your space.

While a little bit of editing can make a photograph look more professional, over-editing can misrepresent your property. Prospective tenants won’t be pleased if they think your walls are snow white when they’re in fact light blue.

6. Maintain the rental property
If the rental property requires any repairs or is in need of a touch-up, be sure that they are conducted before viewings start. Prospective tenants are not going to be interested if the floorboards are dirty and damaged, or if the walls are in desperate need of painting. They also won’t be pleased if they rent out your property only to discover the heating is broken or the pipes need replacing. Create a space that is clean and comfortable; if you’re not comfortable living there, tenants won’t be either. After a tenant has moved in, be responsive and timely when they contact you should an issue arise.

7. Understand tax laws
Canada Revenue Agency requires that rental income is reported on your annual tax return, so it is important to know what can and cannot be deducted. Any reasonable expense – repairs or renovations, for example – incurred to earn your rental income can be deducted, but you cannot deduct the value of your own labour if you do the repairs or renovations yourself. If you’re unsure, the CRA provides a full list of expenses you can deduct, both current and capital, and what you cannot deduct.

Home Sales Prices Decline as the Market Returns to a Balanced Level

Selling prices declined from the early year peak as market conditions became more balanced and homebuyers have sought to mitigate the impact of higher borrowing costs. With that being said, the marked downward price trend experienced in the spring has come to an end. Selling prices have flatlined alongside average monthly mortgage payments since the summer.

 

Ontario - Selling Prices Declined As Market Conditions Became Balanced 

Toronto, 05 December 2022 -- Homeownership market activity in November continued to be influenced by the impact of higher borrowing costs on affordability. Sales were down markedly compared to the same period last year, following the trend that unfolded since the commencement of interest rate hikes in the spring. New listings were also down substantially from last year, and at a very low level historically. The fact that the supply of homes for sale has remained low, has supported average selling prices at the $1.08 to $1.09 million mark since August.

Greater Toronto Area (GTA) REALTORS® reported 4,544 sales through TRREB’s MLS® System in November 2022 – down 49% compared to November 2021, but remaining at a similar level to October especially after considering the recurring seasonal downward trend in the fall. New listings, at 8,880, were down on both a year-over-year basis and month-over-month basis.

“Increased borrowing costs represent a short-term shock to the housing market. Over the medium- to long-term, the demand for ownership housing will pick up strongly. This is because a huge share of record immigration will be pointed at the GTA and the Greater Golden Horseshoe (GGH) in the coming years, and all of these people will require a place to live, with the majority looking to buy. The long-term problem for policymakers will not be inflation and borrowing costs, but rather ensuring we have enough housing to accommodate population growth,” said TRREB President Kevin Crigger.

“We have seen a lot of progress this year on the housing supply and related governance files such as the More Homes Built Faster Act. This is obviously good news. However, we need these new policies to turn into results over the next year. Otherwise, the current market lull will soon be behind us, population growth will be accelerating, and we will have done nothing to account for our growing housing needs. The result would be enhanced unaffordability and reduced economic competitiveness,” said TRREB CEO John DiMichele.

The MLS® Home Price Index Composite Benchmark was down by 5.5% year-over-year in November 2022. The average selling price for all home types combined was down by 7.2% year-over-year. Annual price declines continued to be greater for more expensive market segments, including detached and semi-detached houses.

“Selling prices declined from the early year peak as market conditions became more balanced and homebuyers have sought to mitigate the impact of higher borrowing costs. With that being said, the marked downward price trend experienced in the spring has come to an end. Selling prices have flatlined alongside average monthly mortgage payments since the summer,” said TRREB Chief Market Analyst Jason Mercer.

 

Ottawa - November Residential Resales: Expectedly Low

December 6, 2022 -- Members of the Ottawa Real Estate Board (OREB) sold 846 residential properties in November through the Board’s Multiple Listing Service® (MLS®) System, compared with 1,456 in November 2021, a decrease of 42%. November’s sales included 658 in the residential-property class, down 39% from a year ago, and 188 in the condominium-property category, a decrease of 50% from November 2021. The five-year average for total unit sales in November is 1,270.

“November’s sales were expectedly low given the typical slowdown this time of year but they also reflect today’s economic conditions,” says Penny Torontow, OREB’s 2022 President. “This is not isolated to our local market. Globally, we’re still adjusting to the post-pandemic world and that affects demand, pricing, interest rates, cost of living, supply chain disruptions and more. As a result, those who can, are waiting and watching.”

By the Numbers – Average Prices*:
The average sale price for a condominium-class property in November was $415,533, a decrease of 4% from 2021.

The average sale price for a residential-class property was $680,031, decreasing 5% from a year ago.

With year-to-date average sale prices at $774,422 for residential units and $454,436 for condominiums, these values represent an 8% increase over 2021 for both property classes.

“What’s concerning about the current market is the impact on first-time homebuyers,” says Torontow. “The marked decrease in condo sales, for example, signals that even entry-level properties are being affected. Fluctuating markets, paired with the stress test, are keeping first-time buyers on the sidelines in a tight rental market—with MLS® rentals increasing 27% this year over last.”

By the Numbers – Inventory & New Listings:
Months of Inventory for the residential-class properties has increased to 3.5 months from 0.9 months in 2021.

Months of Inventory for condominium-class properties has increased to 3.4 months from 1.1 months in 2021.

November’s new listings (1,598) were 12% higher than 2021 (1,429) and down 22% from October 2022 (2,046). The 5-year average for new listings in November is 1,398.

“With nearly four months of inventory and an average 30 days on market, Ottawa now has a balanced resale market, slightly tipping toward the buyers,” says Torontow. “Sellers are well-advised to work with a REALTOR® who has hyper-local knowledge about specific neighbourhoods, appropriate price points and ideal timing. Prices are adjusting but real estate is a long-term investment. It’s the same reason I tell buyers to marry the house and date the rate.”

Home sales and listing activity continue trending below long-term averages in November

Alberta - 2022 On Track To Be a Record Year For Sales

City of Calgary, Dec. 1, 2022 – Residential sales in the city slowed to 1,648 units, a year-over-year decline of 22%, but 12% above the 10-year average.

The pullback in sales over the past six months was not enough to erase gains from earlier in the year as year-to-date sales remain nearly 10% above last year’s record high. The year-to-date sales growth has been driven by a surge in both apartment condominium and row sales.

“Easing sales have been driven mostly by declines in the detached sector of the market,” said CREB® Chief Economist Ann-Marie Lurie. “Higher lending rates are impacting purchasers buying power and limited supply choice in the lower price ranges of the detached market is likely causing many purchasers to place buying decisions on hold.”

A decline in sales was met with a pullback in new listings and inventories fell to the lowest level reported in November since 2005. The pullback in both sales and new listings kept the months of supply relatively tight at below two months. The tightest conditions are occurring in the lower-price ranges as supply growth has mostly been driven by gains in the upper-end of the market.

Despite the lower supply levels, prices have trended down from the peak reached in May of this year. Even with the adjustments that have occurred, November benchmark prices continue to remain nearly nine% higher than levels reported last year.

 

Detached
Detached sales slowed across every price range this month, contributing to the year-over-year decline of nearly 34% and the year-to-date decline of five%. On a year-to-date basis, sales have eased for homes priced under $500,000 as the level of new listings in this price range has dropped by over 36% limiting the options for purchasers looking for affordable products. 

Meanwhile, new listings and supply selection did improve for higher-priced properties creating more balanced conditions in the upper-end of the market. This has different implications for price pressure in the market.

The benchmark price in November slowed to $619,700, down from the high in May of $648,500. While prices have eased over the past several months, they continue to remain nearly 11% higher than levels reported last year.

Semi-Detached
The pullback in sales this month was enough to cause the year-to-date sales to ease by nearly one% compared to last year. Despite the recent declines, year-to-date sales remain 37% above long-term averages for the city.

Easing sales this month were also met with a pullback in new listings, causing further declines in inventory levels and ensuring market conditions remained relatively tight with a month of supply of 2 months and a sales-to-new-listings ratio of 100%. 

Unlike the detached sector, the tight conditions prevented any further retraction in prices this month. In November, the benchmark price reached $562,800, slightly higher than last month and nearly 10% higher than last year’s levels.

Row
Further declines in new listings likely contributed to the slower sales activity this month as the sales-to-new-listings ratio remained high at 99%. Inventory levels fell to 383 units, making it the lowest level of November inventory recorded since the 2013. This low level of inventory ensured that the months of supply remained below two months.

Despite the persistently tight market conditions, prices trended down this month reaching $358,700. While prices have eased from the June high, they are nearly 14% higher than prices reported last November. The strongest price growth was reported in the North East, North and South East districts where prices have risen by over 18%. 

Apartment Condominium|
Despite a pullback in new listings this month, apartment condominium sales continued to rise, and inventories fell to the lowest November levels seen since 2013. This caused further tightening in market conditions as the sales-to-new-listings ratio pushed above 100% and a month of supply dropped to two months. 

Recent tightening in the market has put a pause on price adjustments for apartment condominiums. In November, prices remained relatively stable at $277,000 compared to last month. While prices have reported a year-over-year gain of nearly 10%, prices are still below their previous highs set back in 2014.

REGIONAL MARKET FACTS

Airdrie -November sales eased mostly due to the significant pullback in detached sales. While sales this month are down over last year’s record levels, overall activity is still far stronger than long-term trends and year-to-date sales are still on pace to reach a new record high.

New listings did improve over the previous year, thanks to gains in row, semi, and apartment-style products. While the growth in new listings did cause November inventories to rise over last year’s low levels, inventory levels remain nearly 40% below long-term trends in the area.

Despite persistently tight conditions, benchmark prices continue to trend down from the record high level reported in April of this year. Despite some adjustments, prices remained over 13% higher than last year’s levels. 

Cochrane - Further declines in November sales contributed to the six% year-to-date decline in sales. However, with 1,091 sales so far this year, this is still 69% above long-term trends for the town. 

Meanwhile, new listings have remained relatively low compared to sales, preventing a more significant shift in inventory levels. In November, inventory levels did rise above the low levels seen last year, but remained 35% below longer-term trends for the area.

Following significant gains reported earlier in the year, benchmark prices continue to trend down in November. However, the adjustments did not erase previous gains as the benchmark price remained over 12% higher than the levels reported last year.

Okotoks - Both sales and new listings eased in November preventing any significant change to inventory levels. While inventory levels are higher than last year, they remain 54% below long-term trends for the area. Overall year-to-date sales activity has improved over last year and is 41% higher than long-term trends. 

As conditions have remained relatively tight this month, we saw a reversal of some of the price adjustments recorded over the previous two months. The benchmark price in November reached $549,100, a two% gain compared to last month, and a year-over-year gain of nearly 16%.

Entertaining in a Small Space

Living in a tiny space is a challenge in everyday life. Space becomes precious on a whole new level during the holidays season. A small home doesn’t mean you have to ditch the seasonal décor and gathering—you just have to be a little more creative with your space.  Follow these simple steps so you can still pull together a perfect party where guests will embrace the charm of your cozy space.

1. Repurpose what you have
Get creative and use available space in a unique way. A kitchen sink filled with ice acts as a cooler when housing beverages, bottles of wine and carafes. A coffee table becomes a "dining area" when covered with a solid white tablecloth. And guests will appreciate a casual party vibe when they see pillows on the floor encouraging them to kick back and relax.

Keep the kitchen island functional during the holidays, Place a vintage sled in the centre for displaying snacks while keeping the rest of the space around free for preparing meals and cocktails.

2. Take a minimalist approach
An abundance of clutter makes any room feel small and cramped. Less is more, try using simple centrepieces such as one singular flower in lieu of large centrepieces and clean, solid lines compared to loads of patterns.

Swap your tablecloth with a table runner and set out white or ivory candles down its centre this gives your room interest and texture while making it feel larger.

3. Use a mini tabletop tree
You may not have room for the pine tree of your dreams—but that doesn’t mean you can’t show off your favourite ornaments. Put tiny tabletop surfaces to use by snipping greenery from backyard trees and arranging the stems in a vase. Use the space below the cutting tree to arrange gifts as a tiny alternative to a traditional Christmas tree.

4. Deck out the unexpected
Use the front of your built-ins and bookcases to display holiday decor like wreaths, garland,s or tree cuttings. A built-in display case with clear glass fronts creates the perfect backdrop to place a fresh magnolia wreath front and centre.

5. Use the stairs with style
If you've run out of space to keep gifts stacked in your living room, put your stairs to work as gift risers. Simply, keep wrapped gifts piled toward one side of the landing.

6. Add cozy elements
Two other favourite elements that mustn’t be missed: are candles and fur. You seriously can’t go wrong with these! Place candles everywhere, preferably in holiday scents of course, and then pile fur blankets wherever there’s room for a cozying up area with loved ones.

7. Make guests move around
With limited seating options, your party’s first arrivals might end up hogging the sofa and dining chairs the whole night, leaving everyone else tired. Instead of offering a sit-down meal, consider drinks and appetizers located in different spots around the space—like a dessert bar or a cheese-and-nuts table—which encourage people to stand up and move around.