10 August 1995 External T.I. 9511195 - XXXXXXXXXX - OFFICE IN HOME

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.

Principal Issues:

1.the deductibility of home office expenses by the employee pursuant to subsection 8(13); and

2.Whether certain payments made directly to or on behalf of the employees give rise to taxable benefits, pursuant to 6(1)

in the case where an employer is in the process of developing a XXXXXXXXXX

Position TAKEN:

Question of fact, general information provided

Reasons FOR POSITION TAKEN:

Departmental Position - IT-352R, previous correspondence 950792 is the most recent.

		951119
XXXXXXXXXX	D. Zion

Attention: XXXXXXXXXX

August 10, 1995

Dear Sirs:

Re: XXXXXXXXXX

This is in reply to your letter of April 11, 1995 wherein you requested our opinion regarding the tax implications of a

XXXXXXXXXX

We apologize for the delay in responding.

More specifically, you have provided documentation concerning the XXXXXXXXXX for our consideration and have requested that we provide comments regarding the deductibility of home office expenses by participating employees. In addition, you have enquired whether or not, certain payments made directly to, or on behalf, of the participating employees give rise to taxable benefits pursuant to subsection 6(1) of the Income Tax Act (the "Act").

The income tax implications resulting from proposed transactions are confirmed by this Department only by way of an advance income tax ruling as described in Information Circular 70-6R2 "Advance Income Tax Rulings" dated September 28, 1990 and Special Release thereto dated September 30, 1992. We are, however, prepared to provide you with the following general comments.

For your information we have enclosed Interpretation Bulletin IT-352R2, "Employee's Expenses, Including Work Space in Home Expenses". This bulletin discusses in detail the provisions of the Act which must be met in order for an employee to be able to deduct qualifying expenses. Such expenses are deductible to the extent that the individual has not been reimbursed and is not entitled to be reimbursed. Although participation in XXXXXXXXXX program may be voluntary, it is our view that once the parties enter into the agreement, the terms and conditions are binding until the agreement is terminated. If the agreement which governs during the existence of the XXXXXXXXXX relationship requires the employee to supply and pay for supplies consumed directly in the performance of the duties, amounts paid by the employee for such supplies would be deductible pursuant to subparagraph 8(1)(i)(iii) of the Act, provided that the appropriate employer's certification (form T2200) were filed with the employee's income tax return as required by subsection 8(10) of the Act.

Similarly, the costs of providing a work space in the home by the employee and the additional costs involved in providing the work space, if required pursuant to the XXXXXXXXXX agreement, would be deductible pursuant to subparagraph 8(1)(i)(ii), as restricted by subsection 8(13) of the Act. Subsection 8(13) prohibits the deductibility of expenses under subparagraphs 8(1)(i)(ii) and (iii) in respect of an office in the home unless "...the individual principally performs the duties of the office or employment..." in that office. For the purposes of the Act generally, and in reference to subsection 8(13) of the Act specifically, we interpret the term "principally" to mean more than 50% of the time. Paragraph 2 of IT-352R2 provides further comments in this regard.

Form T2200, pursuant to Subsection 8(10) of the Act, is the prescribed form which must be signed by an employer certifying that the required conditions were met in order to claim deductions under paragraphs 8(1)(f), (h), or (h.1), as well as subparagraphs 8(1)(i)(i),(ii) and (iii). Since the form is used for various types of expenses that may be claimed by an employee, some of the questions on the form may not be applicable to a particular situation. A negative response to those questions which do not apply to the employee will not necessarily preclude the employee from claiming those expenses to which the employee is entitled.

Generally, where an employer reimburses an employee for costs which are necessary in order that the employee carry out his or her duties of employment, the employee would not be considered to have received a taxable benefit pursuant to paragraph 6(1)(a) of the Act. However, it would be necessary to review the pertinent details before it can be determined whether or not in fact an employee has received a taxable benefit as a consequence of a reimbursement. Where the expense has both a personal and business component, the employer would only be required to report (and the employee to include) as income to the employee those amounts which pertained to personal use. For payments of a mixed business and personal character, such as insurance premiums or maintenance and repair costs, a reasonable allocation based on the ratio of business to personal use may be used to determine the taxable portion.

We are also enclosing a copy of the 1994 Employment Expenses Guide and direct your attention specifically to page 10 which discusses expenses incurred for supplies and work space in the home. You will note from the comments under the heading "Supplies" that the cost of any capital equipment such as a computer is not deductible.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch