A major tax benefit for someone who is a self-employed independent contractor is the business-use-of-home deduction, but many people do not understand the rules.

The first thing that taxpayers in Toronto need to understand when they are working as independent contractors is whether or not they actually meet the criteria for being a self-employed contractor, or are they simply an employee?

The Canada Revenue Agency (CRA) looks at several factors when making this determination:

• control – more control is generally exercised by an employer over an employee than by a client over a self-employed person
• chance of profit/risk of loss – self-employed persons usually have some degree of financial risk, and more opportunity for profit than employees
• integration – an employee’s job will be an integral part of an employer’s business, where the tasks performed by a self-employed person will likely be less integrated with the client’s business
• tools and equipment – self-employed persons are more likely to be supplying their own tools and equipment, as well as being responsible for their maintenance

Once this determination is made, usually with the help of a Toronto Accountant, if the taxpayer is in fact an independent contractor, it is possible to deduct a portion of the home as a business expense. This also has rules, which the CRA outlines as:

You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:

• it is your principal place of business
• you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients

It is important to know that the “principal place of business” means that at least 50% of work is being done at the location.

Of course, you should always consult an Accountant Toronto before claiming any deductions.