Author Topic: Business Use of Home or CCA - which is better?  (Read 673 times)

Goldielocks

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Business Use of Home or CCA - which is better?
« on: March 05, 2020, 10:55:33 AM »
I have tax question, I can't figure out.

My PT consulting business finally made income this past year, more than basic expenses.  (Great!)  It was due to a one time contract with a client that turned out to be a nightmare that won't be repeated. (Boo).

Even so, it did not make enough to cover CCA AND Business Use of Home carryover from the last 3 years.

Scenario :
Gross income: $23k
Misc. Expenses: $5k
Net $18k.

Business use of home (this year, typical) $2.6k
Carry over Business use of home, prior years: $6.6k
Available CCA to claim: $19k, maybe more.

Which is better- claim the Business use of home (which will never be used to create negative income), or CCA (which may partly disappear next year)?

WHAT HAPPENED ?
The high CCA - this is because we bought a ZEV car at the end of the year (Nov), and because we had not sold the other car, I forced us to not drive it except for this business.  So, we put on very low miles, but 90% business miles on it.

It qualifies for the new rate class 54, with 100% CCA in the first year.   BUT!
-We will have to repay some of it if the business closes and I revert it to personal use (recapture CCA) or
-We will have higher personal use rate next year (we sold the other car), then the personal use portion is removed.  E.g., if next year we have 35% business use, then $2-4k of remaining CCA disappears.

Other factor -- this is the 4th year in business.  I intentionally started it Dec '16 to incur the start up costs (licensing, printer, etc) to claim expense losses against a high T4 income for 2016 and 2017 before I FIRED.  In 2017 (first year) it grossed less than $4k, then less than $7k, etc., with insufficient income to cover the business use of home each year.

I kept operational expenses low because it is a business, and should not be at a loss each year.  Mainly expenses due to office supplies, software licensing, advertising (minor) and fees with my association.  I declare personal use %'s.

I am worried if I don't show a profit this year that it will trigger an audit, because year 4 and all.
These CCA claims can really drop the income down.

What would you do - claim the CCA now, incase the car reverts to a lot more personal use in future, and it disappears?  Or claim the business use of home in a high income year, and get that balance down, now, incase I decide to NOT invest heavily in marketing, due to risk, and don't get another strong year, ever, sufficient to wipe it out?

flagging @Cpa Cat   All other suggestions helpful!

Mighty Eyebrows

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Re: Business Use of Home or CCA - which is better?
« Reply #1 on: March 08, 2020, 05:26:36 PM »
As you probably know, two significant CRA red flags for CCPCs are business use of cars and homes:

http://www.canadian-accountant.com/content/taxation/20-tax-audit-triggers

It is good you are walking carefully.