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: 1) Does the employer have to ensure the conditions are met before signing Form T2200? 2) Can a commissioned sales employee claim expenses related to workspace in the home, used to earn employment income, if their work requires them to be in the field working at clients locations for greater than 50% of the time and the workspace is used exclusively for business purposes? 3) How is the 50% principal use condition determined? 4) What is the meaning of the condition "for meeting customers" in paragraph 2b of IT-353R2? Does the customer have to physically visit the home office?
Position: 1) Pursuant to subsection 8(10) of the Act, Form T2200 is the prescribed form which must be signed by an employer in order for an employee to claim deductions for expenses under paragraphs 8(1)(c), (f), (h) or (h.1) or subparagraphs 8(1)(i)(ii) or (iii) of the Act. The words of subsection 8(10) of the Act indicate that by signing the form, the employer certifies that the required conditions set out in the above provisions are met. It follows that the best course of action is for the employer to be reasonably certain the employee meets the conditions before signing Form T2200. For the employee to claim the deduction, however, he or she must be able to demonstrate that the requirements of subsection 8(13) of the Act have in fact been met. 2) Question of fact. The conditions required in subsection 8(10) and subparagraph 8(1)(f) of the Act must be met and any deduction otherwise available is subject to further restrictions pursuant to subsection 8(13) of the Act. 3) Although the term "principally" is not defined in the Act, we have accepted the view that it means "more than 50% of the time". Such a determination however involves a finding of fact in each case as to where a particular individual "principally performs the duties of the office or employment". 4) The regularity and frequency of meetings in a workspace to meet the requirement of being on a regular and continuous basis will depend on the nature of the business activity and is determined on the facts of each situation. However, a workspace in respect of a business, which normally requires infrequent meetings or frequent meetings at irregular intervals, would not meet the requirement. Generally, it is CRA's view that meetings are conducted in person.
Reasons: Reading of the legislation and consistent with prior positions.
May 24, 2007
Moncton TSO Business Enquiries HEADQUARTERS
50 King Street Income Tax Rulings
Moncton NB E1C 4M2 Directorate
J Bertram, CGA, CPA(vt)
Attention: Marc Gautreau (613) 957-8954
2007-022823
Re: Subsection 8(13) Workspace in the Home - Employee
We are writing in response to your March 21, 2007 request for interpretations regarding the deductibility of an employee's expenses related to a workspace in the home. You posed several questions, which can be summarized as follows:
1) Should an employer answer "yes" to the first part of question 10 on the T2200 if an employment contract requires an employee to maintain a home workspace but the conditions under subsection 8(13) of the Income Tax Act (the "Act") are not necessarily met?
2) Can a commissioned sales employee claim expenses related to a contractually required workspace in the home if the workspace is used exclusively for employment purposes but the nature of the work is such that the employee is in the field working at clients' locations for more than 50% of the time?
3) For purposes of the condition in subparagraph 8(13)(a)(i) of the Act, how is it determined where the individual "principally performs" his or her employment duties?
4) For purposes of the condition in subparagraph 8(13)(a)(ii) of the Act, what is the meaning of the phrase "for meeting customers"? Does the customer have to physically visit the home office?
Pursuant to subsection 8(10) of the Act, Form T2200 is the prescribed form which must be signed by an employer in order for an employee to claim deductions for expenses under paragraphs 8(1)(c), (f), (h) or (h.1) or subparagraphs 8(1)(i)(ii) or (iii) of the Act. The words of subsection 8(10) of the Act indicate that by signing the form, the employer certifies that the required conditions set out in the above provisions are met. It follows that the best course of action is for the employer to be reasonably certain the employee meets the conditions before signing Form T2200. For the employee to claim the deduction, however, he or she must be able to demonstrate that the requirements of subsection 8(13) of the Act have in fact been met.
Where an individual was employed in a year in connection with the selling of property or negotiation of contracts for the individual's employer, a deduction pursuant to paragraph 8(1)(f) of the Act may be claimed in respect of amounts expended in the year for the purpose of earning the employment income. Whether any particular commissioned sales employee is eligible to claim such expenses is a question of fact but the requirements of paragraph 8(1)(f) are as follows:
(a) the contract of employment required the employee to pay the expenses so incurred,
(b) the employee was ordinarily required to carry on the duties of employment away from the employer's place of business,
(c) the employee was remunerated in whole or in part by commissions or other similar amounts fixed by reference to the volume of the sales made or the contracts negotiated, and
(d) the employee was not in receipt of an allowance for travel expenses that was excluded from income by virtue of subparagraph 6(1)(b)(v),
to the extent that such expenditures were not
(e) outlays, losses or replacements of capital or payments on account of capital, except capital cost allowance and interest deductible under paragraph 8(1)(j),
(f) outlays or expenses made or incurred for club dues or the use of recreational facilities that would, by virtue of paragraph 18(1)(l), not be deductible if the employment were a business carried on by the salesperson or
(g) payments, which reduced the amount of the standby charge that was required to be included in income in the year.
As explained in Interpretation Bulletin IT-352R2, "Employee's Expenses, Including Work Space in Home Expenses", where an employee satisfies the requirements of paragraph 8(1)(f) of the Act, subsection 8(13) of the Act imposes further restrictions on deductions related to a workspace in the home that may otherwise be available. Such expenses are only permitted if the workspace is either:
(i) the place where the individual principally performs the office or employment duties, or
(ii) 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, for meeting customers or other persons in the ordinary course of performing the office or employment duties.
Although the term "principally" is not defined in the Act, the CRA has accepted the view that it means "more than 50% of the time". Such a determination involves a finding of fact in each case as to where a particular individual "principally performs the duties of the office or employment". Where the individual meets the test in either (i) or (ii) above, he or she will be able to deduct the expenses related to the work space only to the extent they do not exceed the income for the year from the office or employment as determined before deducting these expenses. Thus, such expenses cannot create or increase a loss for income tax purposes from the office or employment. Unused amounts may be carried forward.
Whether a taxpayer meets customers at the home office on a regular and continuous basis is a determination of fact. The meaning to be accorded to "regular and continuous" in subparagraph 8(13)(a)(ii) of the Act for the purpose of computing employment income would be similar to that given to this same expression in subparagraph 18(12)(a)(ii) of the Act for the purpose of computing business income. The CRA's position on the interpretation of the expression "regular and continuous" in subparagraph 18(12)(a)(ii) is set out in paragraph 3 of Interpretation Bulletin IT-514, "Work space in home expenses", as follows:
The second requirement is that the workspace must be used for meeting clients, customers or patients on a regular and continuous basis. The regularity and frequency of meetings in a workspace to meet the requirement of being on a regular and continuous basis will depend on the nature of the business activity and is determined on the facts of each situation. However, a workspace in respect of a business, which normally requires infrequent meetings or frequent meetings at irregular intervals, would not meet the requirement.
Although the Act does not specify what is meant by "meeting clients", the Oxford Canadian dictionary defines "meeting" as "an assembly of people and defines "meet" as: " a. encounter (a person or persons) by accident or design; come face to face with, b. (two or more people) come into each other's company by accident or design". Notwithstanding the 2002 informal decision of the Tax Court of Canada in the Vanka case (2002 DTC 3815), which was based on very unique facts and involved business income, it is our view that this traditional interpretation that meetings refer to those held in person would apply to the interpretation of subsection 8(13) of the Act.
We trust the above will be of assistance to you.
Yours truly,
Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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