5 August 2004 External T.I. 2004-0066821E5 - Workspace in Home 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.

Principal Issues: Whether a salesperson can deduct home office expenses if she uses the home office to arrange appointments with customers.

Position: Question of fact. General comments provided.

Reasons: Home office must be the place where the employee "principally performs the duties of employment". Determination should be made by TSO after complete review of all facts.

XXXXXXXXXX 2004-006682

P. Massicotte, CA, M.Fisc.

August 5, 2004

Dear XXXXXXXXXX:

Re: Work Space in Home Expenses

We are writing in reply to your letter of March 8, 2004 requesting our views in connection with the restrictions provided in the Income Tax Act (the "Act") regarding the deduction of expenses that relate to work space in a home.

You describe your situation as being a salesperson for XXXXXXXXXX and are required inter alia to maintain an office at home, where you make conference calls, book appointments, seminars and client events, receive client calls and correspondence.

You submit, that in light of the limited facts described above, your home office should be considered your "principal place of business".

Our Comments

The circumstances outlined in your letter relate to a specific fact situation. As explained in Information Circular 70-6R5, dated May 17, 2002, this Directorate does not comment on transactions involving specific taxpayers except by way of an advance income tax ruling in respect of proposed transactions. When the situation involves a specific taxpayer and a completed transaction, the question should be directed to the appropriate Tax Services Office for their views, along with all relevant facts and documentation. However, we are prepared to provide you with the following general comments.

We assume you are an employee of XXXXXXXXXX and not a self-employed individual. Where an individual was employed in a year in connection with the selling of property or negotiation of contracts for the individual's employer, a deduction may be claimed in respect of amounts expended in the year for the purpose of earning the income from the employment, provided the requirement in subsection 8(10) of the Act is met (Form T2200) and the following conditions are satisfied:

(a) the contract of employment required the employee to pay the expenses so incurred,

(b) the employee was ordinarily required to carry on the duties of employment away from the employer's place of business,

(c) the employee was remunerated in whole or in part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and

(d) the employee was not in receipt of an allowance for travel expenses that was excluded from income by virtue of subparagraph 6(1)(b)(v),

to the extent that such amounts were not

(e) outlays, losses or replacements of capital or payments on account of capital, except capital cost allowance and interest deductible under paragraph 8(1)(j),

(f) outlays or expenses made or incurred for club dues or the use of recreational facilities that would, by virtue of paragraph 18(1)(l), not be deductible if the employment were a business carried on by the salesperson or

(g) payments which reduced the amount of the standby charge that was required to be included in income in the year.

As explained in Interpretation Bulletin IT-352R2, Employee's Expenses, Including Work Space in Home Expenses, where an employee is entitled to deduct expenses under paragraph 8(1)(f) of the Act, the amounts expended in relation to a work space in the home where the employee resides may be deducted only under certain circumstances and within certain limits in computing the individual's income from an office or employment for a taxation year. In order to deduct such expenses, paragraph 8(13)(a) of the Act provides that the work space must either be:

(i) the place where the individual principally performs the office or employment duties, or

(ii) used exclusively during the period to which the expenses relate to earn income from the office or employment and, on a regular and continuous basis, for meeting customers or other persons in the ordinary course of performing the office or employment duties.

A copy of the above publication can be found on our website at: www.cra-arc.gc.ca.

Although the term "principally" is not defined in the Act, we have accepted the view that it means "more than 50% of the time". Such a determination however involves a finding of fact in each case as to where a particular individual "principally performs the duties of the office or employment".

Where the individual meets the test in either (i) or (ii) above, he or she will be able to deduct the expenses related to the work space only to the extent they do not exceed the income for the year from the office or employment as determined before deducting these expenses. Thus, such expenses cannot create or increase a loss for income tax purposes from the office or employment.

The expenses related to a work space that cannot be deducted in a taxation year because they would create or increase a loss from an office or employment will be deemed, by virtue of paragraph 8(13)(c) of the Act, to be expenses related to a work space in the immediately subsequent taxation year in respect of the same office or employment.

We trust the above comments are of assistance to you.

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch