12 July 2011 Internal T.I. 2011-0402581I7 - Allowance for workspace in the 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.

Principal Issues: Is an allowance received by employees to cover a portion of their home office expenses considered a taxable benefit if the employee cannot deduct the home office expenses?

Position: Yes.

Reasons: The allowance is considered a taxable benefit under 6(1)(b) regardless of whether the home office expenses are allowed as a deduction under 8(13).

XXXXXXXXXX
									2011-040258
									Ann Townsend

July 12, 2011

Dear XXXXXXXXXX :

Re : Allowance for Home Office Expenses

I am writing in response to your email dated April 12, 2011, in which you asked whether a home office allowance received by an employee is required to be included in the employee's income when no home office expense is deductible because the requirements of paragraph 8(13)(a) are not met.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Subsection 5(1) provides that a taxpayer's income from an office or employment is the salary, wages and other remuneration, including gratuities, received by the taxpayer in the year. Paragraph 6(1)(b) indicates that there shall be included in computing the income of a taxpayer for a taxation year from an office or employment all amounts received by the taxpayer in the year as allowances for personal or living expenses, or as an allowance for any other purpose, unless it falls within the exceptions listed in subparagraphs 6(1)(b)(i) to (ix). An allowance received by an employee to cover home office expenses is not one of the exceptions listed in subparagraphs 6(1)(b)(i) to (ix). Therefore, a home office allowance received by an employee is required to be included in computing the income from an office or employment in the year of receipt in accordance with paragraph 6(1)(b).

In order for an employee to deduct expenses related to a home office, the expense must be deductible under paragraph 8(1)(f) or (i) and satisfy the requirements of subsection 8(13). Paragraph 8(13)(a) requires that the work space must be the place where the individual principally performs the duties of employment or it must be used exclusively to earn employment income and be used on a regular and continuous basis for meeting clients or other persons in the ordinary course of performing employment duties.

In computing income from an office or employment, there is no connection between the income inclusion of an allowance under paragraph 6(1)(b) and the home office expense deduction under paragraph 8(1)(f) or (i). Therefore, an employee is required to include in computing his/her income from an office or employment under paragraph 6(1)(b) a home office allowance received in a given taxation year even if no home office expense is deductible because the requirements of paragraph 8(13)(a) are not met.

I trust the foregoing is of assistance.

Yours truly,

Guy Goulet CA, M.Fisc.
Manager
For Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch