This post by guest blogger Randall Orser appears in our series of tools for WAHMs and mompreneurs.
Randall’s advice here applies specifically to Canadian home-based businesses. Other guest bloggers offer an American perspective. For professional advice in your jurisdiction, contact us to find an accountant or bookkeeper from the Wave Pro Network.
There are a number of great tax-deductions for home-based businesses that can be claimed by work-at-home moms and mompreneurs.
Technically, your mortgage payments and depreciation (or capital cost allowance) is one of those eligible deductions, but I generally discourage clients in Canada from using it.
Why? In short: You'll pay for it later when you sell your home.
Here are the details:
Let's say you use 10% of your home to run your home-based business.
Let's also imagine that you bought your home for $400,000 (including renovations, selling costs, etc.), and now you sell for $600,000. If you have not been claiming a portion of your mortgage payments, the $200,000 difference is not taxed, because your home is your principal residence.
But suppose you’ve been writing off 10% of your mortgage over the years. In that case, 10% of this $200,000 gain — i.e., $20,000 — is now taxable as a capital gain.
Since the appreciated value of your home is one of the strongest tax-free ways of building your net worth, I suggest maximizing it by not claiming it for your business.
—Randal Orser was the first certified professional bookkeeper in Canada. In the late 1990s he started his own business, Cascade Business Services, which was renamed Number Crunchers® Financial Services in 2007. Also in 2007, along with Randall and Dianne Mueller, he started the Institute of Professional Bookkeepers of Canada in 2007.
Randall Orser CPB, SACC Number Crunchers® Financial Services Div. of Cascade Business Services Centre Inc.
LinkedIn: Randall Orser
Facebook: Number Crunchers
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