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 the cost of an apartment would be deductible in computing the taxpayer's income from a business.
Position: Question of fact but in this case no.
Reasons: The law.
XXXXXXXXXX Michael Cooke
2008-028025
November 21, 2008
Dear XXXXXXXXXX :
Re: Deductible Business Expenses
This is a response to your letter of February 1, 2008, concerning the deductibility under the Income Tax Act (the "Act") of the rental costs of an apartment.
Specifically, you indicate that you are a partner in a chartered accounting partnership that is located in XXXXXXXXXX . You work primarily out of the firm's XXXXXXXXXX office, but have a home office in a house you recently bought in XXXXXXXXXX , which is located approximately XXXXXXXXXX kilometers from XXXXXXXXXX . You have rented an apartment in XXXXXXXXXX for use when late hours or inclement weather make it undesirable for you to travel home at the end of a work day.
Comments:
The situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. To obtain the Canada Revenue Agency's ("CRA") views on completed transactions involving specific taxpayers you should submit all relevant facts and documentation to the appropriate Tax Services Office ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA's website. Although we cannot comment on your specific situation, we are prepared to provide the following comments, which may be of assistance.
Business expenses of a non-capital nature are generally deductible (subject to any specific limitation) only to the extent that such amounts are incurred to earn income and are otherwise reasonable in the circumstances. However, pursuant to paragraph 18(1)(h) of the Act, personal or living expenses, other than travel expenses incurred by the taxpayer while away from home in the course of carrying on the taxpayer's business, are not deductible in computing income from a business. Notwithstanding that you have a workspace in your home, the XXXXXXXXXX office appears to be where the business activities are principally performed and would therefore be the base of your business operations. This situation differs from one in which someone must stay overnight in a location at which he or she occasionally conducts business. Accordingly, in our view, the costs incurred in respect of the XXXXXXXXXX apartment represent personal expenses and pursuant to paragraph 18(1)(h) of the Act, would not be deductible.
We trust our comments will be of assistance.
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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