3 March 1998 External T.I. 9802335 - HOME OFFICE EXPENSES

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Whether or not home office expenses can be deducted from employment income, under two different scenarios.

Position:

No, under both situations.

Reasons:

In both situations, an office has been provided to the taxpayer and there is no written or implied requirement for the taxpayers to provide an office in their homes.

980233

XXXXXXXXXX Karen Power, C.A.

March 3, 1998

Dear XXXXXXXXXX:

Re: Deduction of Home Office Expenses from Employment Income

This is in reply to your letter of January 23, 1998, wherein you requested our views on whether home office expenses would be deductible from employment income in the following situations.

Situation #1:

A professor at the XXXXXXXXXX retains a residence and office in Vancouver. During the summer months he moves there and does his research at the local Universities, book stores and libraries because the research material is more abundant in Vancouver. He then prepares all outlines and completes his course preparation for the following terms.

Situation #2

XXXXXXXXXX

The College has moved all classes, instructions, and operations to various locations around town. Instructors now share offices. Some offices having as many as eight Instructors assigned to two desks. Many Instructors have moved their class preparation and research to their home offices.

Our Comments

The particular circumstances in your letter on which you have asked for our views appears to be a factual situation involving a specific taxpayer. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate district taxation office for their views. However, we are prepared to offer the following general comments which may be of some assistance to you.

The Department's general position on the eligibility of employees to claim expenses in respect of work space in the home is set out in Interpretation Bulletin IT-352R2 "Employee's Expenses, Including Work Space in Home Expenses" which has been enclosed for your convenience.

Paragraph 1 of IT-352R2 states that "subparagraphs 8(1)(i)(ii) and (iii) allow a taxpayer, in computing income for a taxation year from an office or employment, to deduct amounts paid in the year as expenses for office rent, supplies and salary to an assistant or substitute. These expenses are deductible provided the following requirements are met:

(a) the taxpayer is required by the contract of employment to pay for such office rent or salary, or to provide and pay for such supplies;

(b) the taxpayer has not been reimbursed and is not entitled to reimbursement
for such expenses;

(c) these expenses may reasonably be regarded as applicable to the earning of income from the office or employment; and

(d) in the case of supplies, they are consumed directly in the performance of the taxpayer's duties of the office or employment."

Subsection 8(13) of the Act prohibits the deductibility of amounts for a work space in the home unless the individual either principally performs the duties of the office or employment in that work space, or, the work space is "used exclusively ...for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties...". The term "principally", for the purposes of the Act, is taken to mean in excess of fifty percent while an "office" is defined in subsection 248(1) of the Act to mean "the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration...". Whether either one of these conditions is met by any particular employee involves a factual determination.

Situation #1:

Generally, in our view, where an employee voluntarily establishes an office in his or her home in circumstances where the employer provides the employee with an office to perform his or her day-to-day employment duties, the employee is not considered to be required to maintain an office in the employee's home.

In situation #1, the professor is voluntarily relocating to Vancouver each summer and there is no requirement by the College for him to do so. Therefore, in our view, based on the facts as we understand them, the professor in question would not appear to be entitled to claim any deduction under subsection 8(i)(ii) and (iii) of the Income Tax Act (the "Act").

You have also asked for our comments on whether or not the professor could claim moving expenses incurred on his moves back to XXXXXXXXXX in the fall. Subsection 62(1) of the Act provides that where a taxpayer commences to be employed at a new location and moves from one residence to another for that reason he or she is entitled to make a claim in respect of eligible moving expenses. Such a claim is limited to the extent of income earned at the new location in either the year of the move or the immediately following year. In situation #1, the professor is not commencing new employment each time he moves back to XXXXXXXXXX, consequently, in our view the professor would not be allowed to deduct moving expenses.

Situation #2:

Although ordinarily the requirements in paragraph 1 of IT-352R2 necessitates that there be an express requirement within the terms of a written contract of employment, it is the Department's general position that this requirement may also be considered to have been satisfied where it is tacitly understood by the employer and the employee that the office in the home be provided, if in fact, it was necessary under the circumstances to fulfill the duties of the employment. In order to determine if an expense incurred by an employee was actually an implied requirement of the contract of employment, the Courts have reviewed whether or not failure to meet the requirement could result in the cessation of employment, poor performance evaluation or other disciplinary action on the part of the employer.

Consequently, in our view, the employees in situation #2, in the circumstances described, would not be entitled to claim a work space in the home amount as a deduction from employment income. A deduction would be denied as there is no written or implied requirement in the contract of employment that a office in the home be provided.

We trust our comments will be of assistance to you.

Roberta Albert, C.A.

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch