As tax season approaches, you might be wondering what expenses are tax deductible. If you have an accountant, they have probably asked you to make a list of any eligible expenses, which may lead to the question, “Is home insurance tax deductible?”
If you are a homeowner in Canada, then chances are you have home insurance. Though not legally required, most mortgage lenders specify that homeowners must obtain a home insurance policy to obtain a loan, and since the majority of Canadians can’t buy a home without a mortgage, they, in turn, purchase home insurance.
Below, we explore the ins and outs of home insurance as it pertains to your taxes.
What is home insurance?
First things first, what is home insurance? To understand whether home insurance is tax deductible, you must first understand what home insurance is.
We can all agree that a home is a major purchase, it may even be the biggest purchase you make in your lifetime. For this reason, it’s important to protect it, and that’s where home insurance comes in. As with any type of insurance, home insurance protects your home from risk.
The specific risks it protects against depending on the policy you choose but may include coverage in the event of fires, theft, vandalism, floods, power outages, and more. As with any insurance policy, it’s up to the policyholder to decide which coverage and how much of each coverage they want to include with their policies.
The home insurance coverage you choose will ultimately depend on your budget, the part of the country you live in (and how prone it is to certain weather-related events), and your unique needs. The insurance policy you choose might also be determined by the way in which you use your home.
For example, if your home also functions as a rental property or home office, specialty coverage might be wise. Home insurance is available on all types of homes in Canada, from townhouses and detached homes to condominiums and semi-detached homes.
The cost of home insurance policies varies by provider and depends on a wide variety of factors, such as the age and location of your home.
Is home insurance tax deductible in Canada?
Now that you know what home insurance is and how it can protect you, let’s dive into the following question: is home insurance tax deductible in Canada? The short answer to this question is that it depends. In some circumstances, you might be able to deduct house insurance from your taxes, but in others, it won’t be possible.
Namely, you cannot deduct a home insurance policy from your personal taxes. However, you can deduct it if you meet certain conditions, such as if your home is a rental property or you operate a business out of it.
Home insurance tax deductions
There are a few circumstances in which you can deduct your home insurance policy from your income tax. The three most common instances are if your home is a rental property, if you operate a business out of your home, or if you use part of your home as an office.
The tax advantages vary based on which circumstance applies to you. We break down the deductions you might be eligible for below.
Deductions on rental properties
If your home, or part of your home, is a rental property, then you are effectively a landlord. As a landlord, you can claim income and expenses relating to your rental property, and this includes home insurance.
Other expenses you might be able to claim include rent collected from tenants, rental income from the previous year, utilities (heating, hydro, water), mortgage insurance, advertising, interest and bank charges, repairs and maintenance, management and administrative fees, travel, property taxes, and more.
When deducting home insurance on your income tax return (form T776 is for landlords), make sure that you only deduct the current year’s coverage. Some policies last longer than a year. If this is the case for you, then you will have to calculate the portion of your policy (and the corresponding cost) that applies to the current year only.
Deductions on home businesses
If you operate a business out of your home, you may be able to deduct certain expenses on your tax return. This might include your home insurance policy, though your business must meet certain conditions to qualify.
Form T2125 is the one that applies to you. It is titled “Calculation of business-use-of-home-expenses.” Please note that any expenses you claim on the T2125 form cannot be claimed anywhere else on your tax return.
If your home serves as your principal place of business, where you earn income or meet with customers, clients, or patients, you may be eligible to claim a variety of business-use-of-home expenses.
Business-use-of-home expenses may include everything from home insurance, property taxes, and mortgage insurance to electric and heating bills, internet bills, phone bills, and capital cost allowance. However, only a portion of each expense can be claimed since only a portion of your home is used for your business (the rest likely functions as a place of residence).
To determine what portion of your expenses you can claim, you will need to know the total square footage of your home and the square footage of the home you use for business purposes. From there, you can calculate what percentage of your property is used for your home business.
For example, if the total square footage of your home is 2,000 square feet and the portion used for business is 225 square feet, you would divide 225 by 2,000 to give you the percentage of your business expenses you can claim. 225 divided by 2,000 is roughly 11%. This means that 11% of all applicable home business expenses can be claimed (11% of your utility bills, 11% of your phone and internet bills, 11% of your home insurance policy, etc.).
Make a list of all your expenses and calculate the amounts you can claim accordingly. Please note that if you rent rather than own your home, you can still claim business-use-of-home-expenses.
However, similar to when you own the property, you must only claim amounts proportional to the space used for the operation of your home business.
Deductions on home offices
Working from home is becoming the norm all over the world. Since many of us now spend part or all of our workweeks working from a home office, you may be wondering whether you are eligible for any type of tax deductions. Good news - in most cases, the answer is yes!
The home office expenses for employees claim allows you to claim your home insurance policy, as well as other property-related expenses, on your income tax return. Currently, there are two methods to claim home office expenses for employees in Canada (though these are subject to change): the temporary flat rate method and the detailed method.
The temporary flat rate method allows Canadians to claim $2 for every day that they worked from home in the previous year. This deduction is capped, though the capped rate varies (it was $400 in 2020 and $500 in 2021 and 2022).
When you opt to use the temporary flat rate method, no documents are needed to support your claim, nor is anything required from your employer. If you choose this method, you won’t directly deduct the cost of your home insurance policy. Rather, your home insurance is deducted as part of the general home office expenses included in the $2 per day.
Canadians also have the option of claiming their home office expenses using the detailed method. When you use the detailed method, you can deduct the specific amounts you paid for work-from-home expenses, so long as you have the necessary documents and receipts. All expenses must be separated between work use and personal use.
Examples of expenses that can be claimed include rent for your home, internet bills, utilities for your home (heat, electricity, water, and condo fees), home maintenance and minor repairs, and home insurance. You may even be able to claim the cost of office supplies or phone bills if they are required by your employer.
Information you must provide to claim your home insurance as a tax deduction
Depending on which circumstance applies to you, you may need to provide proof of the amount paid for your home insurance policy. If this is the case, be sure to keep a record (ideally an electronic record) of your home insurance policy.
If you cannot find a copy of your home insurance policy, contact your insurance provider or broker to help you obtain one. Even if you are not required to include proof of home insurance costs with your tax return, you should keep a record of all expenses in the event of an audit by the Canada Revenue Agency (CRA).
Other deductions for homeowners in Canada
Beyond claiming your home insurance policy as a tax deduction (if applicable), there are several other ways that Canadian homeowners can minimize how much income tax they pay.
These benefits do not relate to home insurance, but you still might be able to benefit from them.
- Home buyers’ amount: If you are a first-time home buyer, you might qualify for the home buyers’ amount, which allows you to claim up to $5,000 when you purchase a qualifying property. (For your home to qualify, it must be listed in your or your spouse’s name and located in Canada. The home can be under construction but you must intend to occupy it within one year of it being acquired.)
- GST/HST new housing rebate: If your home is a new build property, you might be able to claim the GST/HST new housing rebate. This rebate is applicable on all homes purchased from a builder, including housing on leased land.
- GST/HST new residential property rebate: If you’ve purchased or built a residential rental property, you could be eligible for the government’s GST/HST new residential property rebate. This rebate is available to landlords who purchased a newly constructed or substantially renovated property, who built their own residential rental property, or who made an addition to a multi-unit residential rental complex.
- Moving expenses: There are certain circumstances in which you might be able to claim your moving expenses on your tax return. For example, if you moved to a new home for work reasons or as a full-time student, you might be able to claim any applicable moving costs.
- Home accessibility tax credit: If you renovated your home to make it more accessible for seniors or someone living with a disability, you might be able to claim the cost of these renovations through the home accessibility tax credit.
- Medical expense claims: In certain situations, the federal government may allow you to claim medical expenses related to your home, such as the cost of installing or operating an air conditioning unit.
- Provincial tax credits: Beyond the tax credits and rebates offered by the federal government, you may also be eligible for certain credits offered by your provincial government. For example, the province of Quebec offers a homebuyers’ tax credit to first-time home buyers in Quebec.
Contact BrokerLink to learn more about home insurance
Still have questions about tax deductions as they relate to home insurance? At BrokerLink, we are experts in all things home insurance and would be happy to answer your questions. We can also help you find a home insurance policy that meets your needs.
Whether you own a rental property, operate a home business, or simply use your home as a residence, we can find a policy that protects your home.
Contact BrokerLink to learn more about home insurance in Canada or to request a free quote. Our quotes are accurate, competitive, and 100% obligation-free, meaning you have nothing to lose and everything to gain by contacting us.
You can reach us by phone, email, or in person at one of our many locations across Canada. You can also use our online quote tool to receive a complimentary home insurance quote in as little as five minutes. Get started with BrokerLink today!
*Please note that BrokerLink is an insurance brokerage, not an accounting firm. For the most up-to-date information on home insurance and tax deductions, please contact a certified accountant or the CRA.