29 February 2000 External T.I. 2000-0008905 - OFFICE 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.

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: How do you determine the reasonable portion of the expenses relating to a work space in a home used in a business?

Position: General comments.

Reasons: It is a question of fact as to what is reasonable in a particular circumstance.

XXXXXXXXXX 		2000-000890
J. E. Grisé
February 29, 2000

Dear XXXXXXXXXX:

Re: Work Space in Home Expenses

This is in reply to your letter of February 8, 2000, requesting our comments on how much of an expense is reasonable with respect to the expenses of a home in which an office is being used by the occupant of the home in the course of carrying on a business.

For purposes of discussion you have provided the following two hypothetical examples:

Example # 1

1. An individual is employed at a regular salaried job during normal business hours.

2. In the evening and on weekends, the individual carries on a tree trimming business as a self-employed individual.

3. The individual maintains an office in his home which is used exclusively for business purposes. The room is not used for personal use.

4. A reasonable square footage allocation between the office area and the entire residence area is 15%.

5. From a time perspective, the office is used approximately 25% of the time when the individual is working on his or her business. The remaining 75% of the time, the individual works at the customers' locations.

6. The total expenses of the home that apply to both the residence portion and the office portion are $10,000.

7. The office in the home is "the individual's principal place of business" as set out in subparagraph 18(12)(a)(i) of the Income Tax Act.

Example #2

1. The individual works full-time as a self-employed farmer.

2. The individual maintains an office in his home which is used exclusively for business purposes. The room is not used for personal use.

3. A reasonable square footage allocation between the office area and the entire residence area is 15%.

4. From a time perspective, the office is used approximately 5% of the time when the individual is working. The remaining 95% of the time, the individual works outside in the fields.

5. The total expenses of the home that apply to both the residence portion and the work space portion are $10,000.

6. The office in the home is "the individual's principal place of business" as set out in subparagraph 18(12)(a)(i) of the Income Tax Act.

The determination of whether an expense claimed or the portion of an expense claimed is reasonable is a question of fact. A review of all the facts surrounding a particular situation would be required to determine if a particular expense claim is reasonable. Accordingly, our comments can only be of a general nature.

Where an office in the home is an individual's principal place of business and is not used personally by the individual or the individual's family, there is no specific office expense restriction in the Income Tax Act relating to the proportion of time spent in carrying on the individual's business in the office and some other place. Accordingly, it is possible, depending on the particular facts, that the individuals in examples #1 and #2 could both be entitled to a deduction of $1,500 in respect of their office in the home.

We hope our comments are helpful.

Yours truly,

John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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