CRA expands its stated policies on the home work space s. 18(12) deduction

CRA’s new Folio, on the s. 18(12) limitation on the deduction of expenses of a home work space from business income, maintains most of the stated positions in IT-514, but also adds some additional points, including:

• The portion of a residence used in a bed and breakfast operation generally will be treated as a work space within a self-contained domestic establishment, being the entirety of the home. Sudbrack (which found that an owner’s area within a guest house was a self-contained domestic establishment notwithstanding that it did not have its own kitchen) will only be followed “in situations that fall within the same fact pattern.”
• Without adverting to Ryan (which went somewhat the other way), CRA states that the references in s. 18(12(a)(ii) to “meeting clients, customers or patients” refers to meetings in person rather than by telephone.
• As s. 18(12) only relates to income from a business, it does not limit expenses incurred to earn income from property, e.g., where a home offices is used to manage rental property that is not a business.
• Home office losses from one business cannot be carried forward under s. 18(12)(c) for deduction from the income of a different business (also using the home office); see also Arbeau.

Neal Armstrong. Summaries of S4-F2-C2 under s. 248(1) - self-contained domestic establishment, s. 18(12)(a), s. 18(12)(b) and s. 18(12)(c).