Debbie asked:

If I personally own (no debt) my vehicle and use it for business and personally then can I still write-off some of its value? The same thing goes for my house. If I own it and therefore don't have rent payments or mortgage payments then can I still write off the portion I use as an office?

Michelle O'Brien-Moran answered:

Automobile

The deductibility of a personally owned vehicle used to earn business income is generally allowed under the Income Tax Act subject to certain restrictions.

Generally, for a business, the operating costs, including capital cost allowance (also known as depreciation), can be claimed for the business portion driven during the taxation year. A motor vehicle is generally classified as a Class 10 or 10.1 asset for capital cost purposes. These classes are subject to a depreciation rate of 30% a year for the un-depreciated value.

A reasonable pro-ration of the operating costs and capital cost allowance would need to be done each year for the business portion of the vehicle used to earn business income.

The rules for automobiles can become quite complicated and the rules can change depending on whether you're an employee, self employed business or an incorporated business in addition to specific restrictions in the Income Tax Act regarding motor vehicles. It is important to sit down with a trusted tax advisor to go over the facts of your business' situation to determine the proper tax treatment for vehicles.

Home Office

The deductibility of “work space in home” expenses depends on whether or not your business use is related to you being an employee or self-employed. If you are an employee, you need to meet one of the following criteria:

1. your work space is where you principally perform the duties of your employment; or
2. it is a place that is used exclusively during the period in respect of which the amount relates for the purpose of earning income from employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the employment.

If you are self-employed, home office expenses can be deducted if you meet one of the following criteria:

1. it is your principal place of business (i.e. that you perform more than 50% of your business duties at home); or
2. your home office is used is used exclusively for the purpose of earning income from your business and is used on a regular and continuous basis for meeting clients, customers or patients of the individual in respect of the business.

If one of the two criteria above is met, then a “reasonable” portion of the home office costs can be deducted against business income.

There are certain restrictions on what you can deduct for home office expenses depending upon your “employment status”, whether you are an employee, commission sales employee or operating a business.

Generally, for a business, a portion of your home can claim capital cost allowance (also known as depreciation). However, it is not always advisable to claim capital cost allowance on your home office space. If a claim is made, that portion of the home will not be eligible for the principal residence deduction and may be subject to recaptured income and/or a capital gain upon the sale of the home.

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