19 May 2011 Ministerial Correspondence 2011-0403621M4 - Employee - Telephone Line and Internet Access Fees

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: Why are the costs of a telephone line and internet access fees not deductible as home office expenses for an employee?

Position: Not considered to be "supplies consumed directly in the performance of the duties of employment".

Reasons: Previously stated position.

XXXXXXXXXX

Dear XXXXXXXXXX :

The office of the Honourable James M. Flaherty, Minister of Finance, forwarded to me a copy of your correspondence, which I received on April 18, 2011, regarding the deductibility of certain home office expenses from employment income.

Expenses incurred by an employee in connection with a home office can only be deducted if the employee meets the conditions described in subsection 8(13) of the Income Tax Act. To be eligible, the work space must:

• be the place where the individual principally performs the office or employment duties; or
• be used exclusively during the period to which the expenses relate to earn income from the office or employment and, on a regular and continuous basis, to meet clients or other persons in the ordinary course of performing the office or employment duties.

As discussed in Interpretation Bulletin IT-352R2, Employee's Expenses, Including Work Space in Home Expenses, deductible expenses for a home office include a reasonable proportion of the expenses paid by the employee for the maintenance of the home (for example, the cost of fuel, electricity, light bulbs, cleaning materials, and minor repairs). Individuals who are not commission sales persons as described in paragraph 8(1)(f) of the Act cannot deduct expenses for capital cost allowance, taxes, insurance, or mortgage interest.

Subparagraph 8(1)(i)(iii) of the Act allows a deduction for the cost of supplies that were consumed directly in the performance of the duties of employment and that the employee was required by the contract of employment to supply and pay for. In addition to certain expenses related to a work space in a home, supplies will usually include such items as long-distance telephone calls and cellular telephone airtime that reasonably relate to the earning of employment income. Supplies, used in the way subparagraph 8(1)(i)(iii) describes, will not include the monthly basic service charge for a telephone line or amounts paid to connect or license a cellular telephone.

The fixed expenses incurred for a telephone line and monthly Internet access fees are not deductible under subparagraph 8(1)(i)(iii) because they are not considered to be supplies that were consumed directly in the performance of the duties of employment. These expenses represent fixed costs which cannot be directly related to the use made in the performance of the duties of employment. Therefore, these costs fail the supplies-consumed-directly test. However, the cost of long-distance and cellular telephone calls or the cost of an unlimited long-distance plan that reasonably relates to the earning of employment income qualify as supplies under subparagraph 8(1)(i)(iii). The expense related to the unlimited long-distance plan should be apportioned between the employment use and the personal use on a reasonable basis.

I trust that the information I have provided is helpful.

Yours sincerely,

Keith Ashfield
Minister of National Revenue

Andrea Boyle
(613) 952-8808
2011-040362