Questions and Answers
I operate a small business. Are my rent expenses tax deductible?
Typically, rent can be deducted as a business expense when rent is paid for property which is used for business purposes.
However, there are a few things which business owners should be aware of when it comes to deducting rental expenses.
Office in the home
A business owner’s workplace could be their home if they have a home office that qualifies as their principal place of business.
If the business owner rents their home and has a home office as their principal place of business, they could also qualify for a deduction.
Lease or purchase
Different tax rules apply depending on whether payments made are for rent or for the purchase of the property.
Businesses should determine whether an agreement is a lease or a conditional sales contract.
If a conditional sales contract, then these aren’t deductible as rent expenses.
Unreasonable rent
In the event that an unreasonable rent is being paid (usually when business owners and the lessors are related), then businesses can’t take a rental deduction. Rent is unreasonable for deduction when it is higher than market value or a professional appraisal.
Rent paid in advance
Rent paid by a business is usually deductible in the year it is paid. If a business pays rent in advance, it can deduct only the amount that applies to the use of the rented property during the tax year.
Canceling a lease
It is usually the case that businesses can deduct the costs paid to cancel a business lease.
How we can help
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Date published Mar 10, 2022 | Last updated Jul 8, 2022
This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.Sign up for our newsletter
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