14 May 1997 External T.I. 9707055 - EMPLOYMENT EXPENSES - HOME OFFICE

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:

Liability of an employer in signing the form prescribed by subsection 8(10) of the Act ("T2200" Declaration of Conditions of Employment) where there is some uncertainty as to whether all the required conditions for claiming a deduction for home office expenses, as outlined subsection 8(13) of the Act are being met.

Position:

The obligation of the employer is with respect to the requirements of subsection 8(10) of the Act only - employer is not required to determine whether conditions in 8(13) are met.

Reasons:

Employer is only directed to subsection 8(10) of the Act.

XXXXXXXXXX 970705

Attention: XXXXXXXXXX

May 14, 1997

Dear Sirs:

Re: Employment Expenses Including Work Space in Home Expenses

We are writing in response to your letter of March 5, 1997, in which you request confirmation of your interpretation of the Income Tax Act (the "Act") relating to work space in home expenses.

In your letter you indicate that certain salaried employees are required by their employment contract to maintain a office in their home since there is no office space provided to such employees at the company's business premises. It is our understanding that these employees are also required to have a separate telephone line, computer, and storage space for files and provide other materials but the company reimburses the employees for the cost of the telephone line and other materials. You further advise that these employees spend, on average, approximately 20% to 30% of their total work time in their respective home office (i.e., communicating with clients by phone/computer, gathering information and preparing client profiles, scheduling appointments) with the balance of their work time, approximately 80% to 70%, being spent on visits to the clients' workplace. We also understand that in no circumstance can it be considered that a particular employee's home office is used on regular or continuous basis for meeting customers or other persons.

Your concern is with your liability, as an employer, in signing the form prescribed by subsection 8(10) of the Act ("T2200" Declaration of Conditions of Employment) where there is some uncertainty as to whether all the required conditions for claiming a deduction for home office expenses, as outlined in paragraph 2 of Interpretation Bulletin IT-352R2, Employee's Expenses, Including Work Space in Home Expenses, are being met. For example, you advise that since such employees only work 20% to 30% of their time in their home office and do use such office for meeting clients or other persons on regular or continuous basis, neither of the conditions outlined in subparagraphs 2(a) and (b) of IT-352R2 appear to be met. However, it is also your view that since such employees are performing all of their "office or administrative" duties in their home office (i.e., 100%), the condition outlined in subparagraph 2(a) of IT-352R2 may appear to be met.

Our Comments

A deduction for office space in the home expenses is made under subparagraph 8(1)(i)(ii) of the Act (i.e., office rent or salary paid to an assistant) or subparagraph 8(1)(iii) of the Act (i.e., cost of certain supplies), both of which restrict any deduction claimed to those expenses for which the employee is required by the contract of employment to supply and pay for (i.e., the employee must not otherwise be reimbursed or entitled to reimbursement in respect of such expenses). As you noted, the signing of the T2200 by the employer is a prerequisite in order for an employee to be able to claim a deduction for any amount under paragraphs 8(1)(f), (h), or (h.1) of the Act, or subparagraphs 8(1)(i)(ii) or (iii) of the Act. However, a signed T2200 does not provide an employee with any assurance that any expense incurred are deductible since the Act contains other criteria that must be satisfied by the employee.

Questions 10(a) and (b) on the T2200, which concern office in the home expenses, simply requires the employer to acknowledge whether the employee was required under a contract of employment to use a portion of his or her home and if so, what expenses, if any, were or will reimbursed. If there is, in fact, a contract or agreement (express or implied) between the employer and the employee which sets out the use of the home work space as one of the conditions of employment then the employer may complete the Employer Declaration portion of the T2200 (i.e. the "certification"). Therefore, although subsection 8(13) of the Act contains additional conditions involving the extent to which the work space in the home is used in the performance of employment duties that may or may not be met by a particular employee, subsection 8(10) of the Act, in our view, does not require the employer to make a determination with respect to these additional conditions in assessing their obligations in providing the certification on the T2200.

Where a T2200 certification is provided to an employee, based on the principles discussed above, it remains a question of fact as to whether a particular employee is entitled to a deduction for any office in the home expenses. As noted above, subsection 8(13) of the Act prohibits the deduction of office in the home expenses unless the individual either principally performs the duties of the office or employment in that work space, or, the work space is "used exclusively ...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 ...". It is our view, as indicated in IT-352R2, that the term "principally" is taken to mean in excess of 50%. The term "office" is defined in subsection 248(1) of the Act to mean "the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration...".

Therefore, it is our view, based on the facts as we understand them, that the employees in question would not appear to be entitled to claim any deduction under subsection 8(10) of the Act in respect of office in the home expenses. A deduction would be denied because in our view, these employees do not perform more than 50% of all duties of their office or employment from a work space or office in the home, nor does it appear that such employees use the work space in their home on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties as required by subsection 8(13) of the Act. Further, based on the facts, it also appears that some expenses would not have been deductible under paragraph 8(1)(ii) of the Act (and subsection 8(10) of the Act) in any event because such expenses were subject to reimbursement by the employer.

While we trust the foregoing comments are useful they are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on the Department.

Yours truly,

F. Lee Workman
Section Chief
Financial Institutions Section
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch