9 November 2012 External T.I. 2012-0435521E5 - Employee's office rent expense

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: Can an employee deduct office rent from income where the office is located outside their home?

Position: Yes

Reasons: Amounts paid to rent an office that is required under the contract of employment are deductible from income under subparagraph 8(1)(i)(ii).

XXXXXXXXXX 2012-043552
B. Ruttan-Morillo

November 9, 2012

Dear XXXXXXXXXX:

Re: Office Rent

We are writing in response to your letter of February 2, 2012 concerning the deductibility of office rent in computing employment income.

You have stated that you and your husband have been hired as building managers for XXXXXXXXXX apartment buildings. One of the conditions of employment was that you had to rent an apartment in one of the buildings in order to have a central office space to conduct business from, including the collection of rent monies from the tenants of the XXXXXXXXXX buildings; however, you continue to maintain and live in your own house. The employer pays for the landline telephone in the apartment and provided the telephone is used for business purposes, no taxable benefit will arise.

According to subsection 8(2) of the Income Tax Act (the Act), no deduction is allowed in computing a taxpayer’s income from an office or employment unless expressly permitted under section 8. Subparagraph 8(1)(i)(ii) of the Act allows a deduction for office rent, the payment of which is required by the contract of employment. The Concise Canadian Oxford Dictionary defines rent as “a regular payment made by a tenant to an owner or landlord for the use of land or premises”. Therefore, there must be a tenant/landlord relationship in order to deduct rent expense under this subparagraph. An employee must also file Form T2200 signed by the employer, as required by subsection 8(10) of the Act.

Interpretation Bulletin IT-352R2, Employee’s Expenses, Including Work Space in Home Expenses, states that in order to claim expenses for office rent and supplies, the following requirements must be 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) those 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.

Therefore, if your contract of employment requires that you pay rent for an office which is used for the purpose of earning income from employment, and your employer has completed and signed Form T2200, a deduction may be allowed under subparagraph 8(1)(i)(ii) for “office rent”. However, section 67 of the Act provides that an expense must also be reasonable in the circumstances in order for the amount to be deductible.

We trust our comments will be of assistance to you.

Yours truly,

Nerill Thomas-Wilkinson
Manager,
For Director
Reorganizations Division
Income Tax Rulings Directorate