I want to clarify if an HST registered sole proprietor can claim ITC’s for Business-use-of-home expenses.

For example, a sole property has a house that is 2000 square feet and the area for business use is 100 square feet. (5% business use)

I see for expenses there is:

• Heat
• Electricity
• Insurance
• Maintenance
• Property taxes
• Other

Business space in home is 5%
If for example, the sole prop spent \$2100 on home expenses (\$2000 net \$100 tax)
Can they claim 5% of the net on the T2125 and 5% of the tax on the HST return?

• Net \$2000 x 5% = \$100 (Claimed on the T2125)
• Tax \$100 x 5% = \$5 (Claimed on the HST return)

or does the gross amount including tax all go on the T2125?
or does the tax portion not claimed at all?

I understand totals are entered on the T2125 and the proration of business use sq ft to total home sq ft produces the calculation on the amount that can be claimed.

Insurance and Property tax don’t have HST.

James Leventakis |

| NiceGuy
January 19 |

• | - |

I want to clarify if an HST registered sole proprietor can claim ITC’s for Business-use-of-home expenses.

For example, a sole property has a house that is 2000 square feet and the area for business use is 100 square feet. (5% business use)

I see for expenses there is:

• Heat
• Electricity
• Insurance
• Maintenance
• Property taxes
• Other

Business space in home is 5%
If for example, the sole prop spent \$2100 on home expenses (\$2000 net \$100 tax)
Can they claim 5% of the net on the T2125 and 5% of the tax on the HST return?

• Net \$2000 x 5% = \$100 (Claimed on the T2125)
• Tax \$100 x 5% = \$5 (Claimed on the HST return)

or does the gross amount including tax all go on the T2125?
or does the tax portion not claimed at all?

I understand totals are entered on the T2125 and the proration of business use sq ft to total home sq ft produces the calculation on the amount that can be claimed.

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You would claim 5% of the HST on qualifying expenses on the HST return

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Federal
See GST/HST memorandum 8.2, Paragraph 8, Reference also to: Excise Tax Act 170(1)(a.1)
"A registrant is not entitled to claim an ITC in respect of the tax paid or payable on…, in relation to a work space (i.e., home office) in a self-contained domestic establishment in which the registrant or individual resides unless the work space:

• is the registrant’s principal place of business; or
• is used exclusively for the purpose of earning income from a business and is used on a regular and continuous basis for meeting the registrant’s clients, customers, or patients in respect of the business."

Quebec
Reference on this from Revenu Quebec is located at this link.

Note that Quebec will defer to Federal rules on the claim for ITC/ITR since they “harmonized” their sales tax with the Federal sales tax system.

Taxcycle
To activate this option, add the GST/HST Number on form T2125 and the QST Number on the TP80, field 22 or 24. At that point, Taxcycle will ask you if it is to prepare a GST370 and the corresponding Quebec version for the ITC.

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I seem to recall that the business use % had to be a certain minimum - 1/8th?

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@LMK In a Zoom tax workshop this week, we were given an example of a home based office that was 5% of the square footage of the house. We were asked to calculate home office expenses and I said there wouldn’t be any because the office wasn’t 10% of the floor space. None of the other twenty people agreed with me that there was any limit to the %. So, I backed down - I don’t know where or how long ago I got that information. I was one of the oldest people on the call, but the one older person, the instructor, didn’t agree with me either. I guess you had the same dream I did.

Besides the % limitation - which I have never heard of either after doing taxes for 20+ years - you can’t take HST on all the expenses when some of them (property taxes etc) don’t have HST charged on them. This is what David_R_Officer is saying. You can take HST on the expenses the way you have calculated that do have HST like electricity however.

To be clear, what I always understood was that it had to be a certain %'age in order to claim any related ITC’s. Not a minimum % to deduct expenses on the T2125.
Cant find it in writing, though - maybe it was just internal office guidelines?