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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
Whether the cost of a work space in the home is deductible in computing rental income.
Position: Question of fact.
Reasons:
A taxpayer would have to show that an office in the home was used in the course of earning rent income. Also, a reasonable basis for determining the deduction of home office expenses would have to be used, e.g., the square metres of floor space used for the home office. The reasonable basis used would have to take into account the personal use, if any, of the home office.
March 4, 2002
REGINA TSO HEADQUARTERS
Office Exam J. Gibbons, CGA
(613) 957-2135
Attention: Garth Christofferson
2002-011872
Work Space in Home - Rental Operations
We are replying to your letter sent by facsimile on January 16, 2002, regarding the deduction of the cost of a work space in the home in computing rental income. You are concerned since an increasing number of taxpayers are claiming such a deduction, which you feel is contrary to the law.
Your position
You are of the view that there is no provision in the Income Tax Act (the "Act") which permits a deduction for the cost of a work space in the home in computing rental income. You also referred to the fact that there is no indication in any of our publications such as the Rental Guide and IT-514, "Work space in home expenses," that such a deduction is allowable. As well, you mentioned that there is no line on the "Rental Income and Expense Statement" to enter an amount for the cost of a work space in the home.
Our views
Under section 9 of the Act, income for a taxation year from a property is the taxpayer's profit from that property for the year. The income so determined is subject to a number of specific provisions in the Act which serve to expand or limit the scope of what is included in income and what is deducted as an expense for income tax purposes. By virtue of paragraph 18(1)(a), an outlay or expense must be made or incurred for the purposes of gaining or producing income to be deductible in computing income from a business or property. Under paragraph 18(1)(h), personal or living expenses of the taxpayer, other than expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer's business, are prohibited. Finally, even if an expense is otherwise permitted by the Act, an outlay or expense may be denied pursuant to section 67, to the extent that it is not reasonable in the circumstances.
As you correctly pointed out, subsection 18(12), which serves to limit the deduction for the cost of an office in the home in calculating business income, does not apply to the calculation of property income. Accordingly, since there is no specific provision in the Act dealing with the deduction of home office expenses against property income, this deduction is subject only to the general provisions of the Act outlined above. In general terms, if a taxpayer can show that a home office was used in the course of earning rental income, it is our view that a reasonable basis for determining the deduction of home office expenses would have to be used, e.g., the square metres of floor space used for the home office. The reasonable basis used would have to take into account the personal use, if any, of the home office.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898, who will send the severed copy to you for delivery to the client.
John Oulton, CA
Manager
Business and Individual Section
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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