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.
940351
XXXXXXXXXX Sandra Short
Attention: XXXXXXXXXX
March 2, 1994
Dear XXXXXXXXXX:
Re: Office in Home expenses
This is in reply to your letter of January 31, 1994 which requests our comments or assistance with a difficulty being experienced by many municipalities in Canada, that is, the reduction in conventional sources of commercial tax assessment that has resulted from the trend of businesses and individuals moving out of the traditional places of work and commencing to work from home. You have expressed concern that few businesses which operate from a home base pay a commercial property assessment for that portion of their home that is used for commercial or business purposes. It is your suggestion that one method of assisting municipalities with this loss of municipal revenues would be to require the taxpayer to provide Revenue Canada - Customs, Excise and Taxation with proof of a commercial assessment for the taxpayer's property or portion of property that is utilized for business purposes.
Where a self-employed individual operates a business from his or her home, that individual is permitted to deduct, for the purposes of calculating profit subject to income tax from that business, a portion of the expenses which relate to the earning of income. These amounts may include electricity, heating, water, insurance and, where the individual owns the home, a portion of the property taxes and mortgage interest. To be able to claim a "work space in home" amount, the individual must meet a number of requirements as discussed in the attached Interpretation Bulletin IT-514. While further restricted as to the types of expenses permitted (see Interpretation Bulletin IT-352R attached), an employed individual who otherwise qualifies, can similarly deduct certain expenses in respect of work space in a self-contained domestic establishment in which he or she resides if that work space is either
(i) the place where the individual principally performs the duties of the office or employment, or
(ii) used exclusively during the period in respect of which the amount relates 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 of the office or employment.
There is no statutory requirement that the work space be zoned or assessed for commercial or business use in order for an individual to be entitled, if that individual otherwise qualifies, to deduct an amount in respect of a work space in the home. Revenue Canada - Customs, Excise and Taxation has no authority under the framework of income tax legislation to require that the individual establish that the work space or self-contained domestic establishment in which the work space is located be zoned or assessed for commercial or business use.
It is our view that an amendment to the provisions of the Income Tax Act which pertain to work space in the home (essentially subsection 8(13) of the Act for employees and subsection 18(12) for individuals earning income from a business) would be required before this Department could require proof of commercial assessment before permitting a business a deduction in respect of a work space in the home. Because amendments to the Income Tax Act are the responsibility of the Department of Finance, you may wish to initiate contact with that Department in this regard. However, we would anticipate difficulties with a proposal for such a provision given that not all municipalities require a commercial assessment for all home businesses or for employees such as commissioned salespersons who work from an office in the home.
We trust our comments adequately explain the Department's position on the issue you have raised.
Yours truly,
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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