Home office deductions can be a money saver for your clients, but these deductions are sometimes a red flag to the Canada Revenue Agency (CRA). If your client gets audited for taking this deduction, you should help them through the process.
Audits may take place in your client’s home or place of business. In any case, make sure the office is ready to be seen. If the office is part of a larger room, advise your client to do something to clearly mark the space, such as blocking it off with duct tape on the floor, so that the auditor can clearly see the space. If it’s a standalone room, you may want to move the furniture away from the walls so the room is easier for the auditor to measure.
If the audit is in the CRA’s office or if the CRA just wants more information, help your client provide that. You may want to use pictures of the home office and the rest of the home. You need both because the home office space is measured as a percentage of the home’s total area.
Also, help your client to gather the proper financial records. With the home office deduction, your client is able to write off a percentage of all their home expenses. Let them know they need to back up that information with bills, bank account statements, invoices, or other records.
Some of the deduction also relates to how much time your client spends in the home office, so you may want your client to create a time log. If they don’t currently have one, they can create an estimated log based on their memory. Let the auditor know if you take that approach. If your client is claiming the deduction based on meeting clients in that space, they need to be ready with records of who they saw and when.
Audits are always easier with clear records. Even before your client gets audited, help them understand the importance of well-organized records. That way, if an audit happens, they will be ready to handle it with no problems.