Even though it’s one of the most important monthly bills homeowners pay (usually only behind the mortgage), no one likes having to pay more than they need to for home insurance.
DO INSURANCE COMPANIES CHARGE TAX ON HOME INSURANCE PAYMENTS?
Yes. Home insurance policyholders in Ontario pay an 8% provincial sales tax on top of their monthly or annual home insurance payments.
ARE HOME INSURANCE PAYMENTS TAX DEDUCTIBLE IN ONTARIO?
If you work from home, yes!
Deducting a portion of home insurance payments from a personal income tax return has become more common since the pandemic in 2020 and the ongoing trend of more work-from-home arrangements.
Whether you’re an employee of a company working from home or earning self-employment income full or part-time, a portion of your home insurance payments are tax deductible.
Why only a portion?
While what you pay in home insurance covers your house 24/7, you’re not using your house for income purposes 24/7 nor are you using 100% or your home for work.
For example, if you spent $1,500 on home insurance this year and if 15% of the space in your home is used for work purposes, then you can deduct 15% of $1,500 ($225) on your personal tax return.
The BDC offers a simple guide to tax-deductible business expenses here.
ARE HOME INSURANCE CLAIMS CONSIDERED TAXABLE INCOME?
In most cases, home insurance payments are not taxable in Ontario.
This is because home insurance payouts are meant to go towards repairing damages to your property.
However if you suffer a total loss and receive the replacement cost of your home, and if that replacement cost is significantly higher than the original purchase price of your home then the difference would likely be considered taxable income.
For example, say you purchased your home in 2013 for $130,000 (sounds crazy right? But this is a real example! Decent-sized homes used to cost that much not too long ago) but now the value of your home has increased to $500,000 (again, this is a real-world example, wild I know).
If you receive $500,000 from your insurance company to cover the full rebuild of your home, the difference between this payment and the original purchase price of $130,000 ($370,000) may be considered taxable income because you’re technically profiting. That’s a good chat to have with your accountant or whoever prepares your annual income tax, some professional advice may be beneficial in this circumstance.
Looking for a home insurance quote in Ontario? Contact us anytime and we’ll be happy to help.
Erie Mutual Insurance proudly serves the commercial insurance, farm insurance, home insurance and auto insurance needs of members throughout Southern Ontario including Haldimand, Niagara and Hamilton.
Please don’t hesitate to contact us with any questions you may have about this or any other topic related to your insurance.
