| Essential information |
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Employee or Self-employed?
Before you can decide which to file, employee or self-employed, this guide may provide guidance and instructions on how to determine your status. Why is it important to determine your status before you claim work space or business use of home? If you file as self-employed when you are actually an employee, some of your home office costs would be denied should you be audited. I once had to help someone who had filed as an employee when they were really self-employed. What a mess, unravelling T777 forms to file T2125 forms is time consuming and stressful.
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IT 514 Work Space in Home Expenses
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T4037 Capital Gains Guide
This guide has information about the partial change in use rules and also about claiming capital cost allowance if you are a landlord and how that affects your principal residence status. You are probably wondering why home office and landlord are on the same page. If your corporation rents space from you, the landlord in your principal residence, unintended consequences may result. You may be required to register for GST/HST because you have a commercial tenant. A portion of your principal residence may be considered capital property and if you sell, capital gains may be incurred.
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| Bed & Breakfast |
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B&B case: Denis v The Queen, 2007 TCC 656 (CanLII)
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Vandonkersgoed nee Holz 2010 TCC208
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CRA Info sheet: GST/HST guidelines for B&B
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Business Plan for B&B
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| Cool links |
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Green your Home / Business - BC Hydro Tips
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| Daycare |
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Overview of Daycare
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Day care in your home
Click on Rooms used for Day Care for specific instructions on how to calculate mixed use of home.
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Rooms used for day care example
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| Employment |
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T4044 Employment Expenses Guide
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T2200 Declaration of Conditions of Employment
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T777 Statement of Employment Expenses
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GST 370 Employee & Partner GST/HST Rebate
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IT 352 Employee Expenses - including Work Space
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Other Employment Expenses
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ITA S. 8(1)(i)(iii) Consumables
Workspace “supplies” under S. 8(1(i)(iii) are for consumables like fuel, electricity, light bulbs, cleaning materials and minor repairs. They don’t include basic line charges for your home phone or connection and licence fees for a cell phone, any special clothing or uniforms and any types of tools that would normally be considered equipment or furniture. Not even a calculator or a printer would be included here. See IT 352 See Paragraph #9 Supplies and ITA S. 8(1)(i)(iii) the cost of supplies that were consumed directly in the performance of the duties of the office or employment and that the officer or employee was required by the contract of employment to supply and pay for
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ITA S. 8(13) Work space in home - office or employ
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| Commission Employees |
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Work space - commission employees
Commission sales persons may claim insurance and property taxes in addition to heat, light, water, maintenance. Note: no mortgage interest claimable by employees, commission or salaried.
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| Salaried Employees |
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Work space - salaried employees
Limited to heat, electricity and minor maintenance
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Work Space in Home Expenses
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Office rent paid by salaried employees
Not to be confused with work space in home...
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| Employment Court Cases |
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Case: Hogg 2002 FCA 177
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Case: McCreath 2008 TCC 595
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Case: Toutov 2006 TCC 187
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| Landlord for your Corporation? |
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ITA S. 18(1)(a) and (d) Rent for property leased
If you want to charge your company rent, you must have a lease in order to charge the rent and write it off. That means you have to claim the rent as income and offset it with your rental costs as allowed in the rental guide:
S. 18(1)(a) and (d) read...a) No deduction except to the extent it was made or incurred for the purpose of gaining or producing income from a business ...and consider d) ...except for rent for property leased by the taxpayer for use in the taxpayer's business...
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T4036 Rental Income
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T776 Statement of Real Estate Rentals
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Principal residence / change in use
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Partial change in use
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FMV when corporation rents from owner/manager
S 67 prevents a deduction for any amount which is not reasonable in the circumstances.
S. 67 will not impute rent. An owner/manager might choose no compensation for rent, or an amount less than FMV.
For rent for space owned by the shareholder. If fair rent would be $100/month, and the company pays $1000/month, that rent is in excess of a reasonable amount, and anything more than $100/month would not be deductible.
With S. 67, unlike S 69, there is no adjustment if the payment is too low. The owner/manager could choose to pay no compensation for workspace in the home.
S 69(1) deals with property transfers. S 69(1.2) deals with property values being artificially manipulated by (for example) rental contracts committing to NAL rent levels. Actual monthly rent is not subject to S 69(1), as no property is being transferred.
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GST/HST FMV on non-arms length transactions
ETA: s. 155 requires FMV on non-arm's length transactions (services AND property) only if the payor wouldn't get a fully offsetting input tax credit. There are other exceptions as well.
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| Self-employed |
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Business Use of Home Expenses
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T4002 Business & Professional Income Guide
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T2125 Calculation of business use of home expenses
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ITA S. 18(12) Work Space - individuals business
Specifically set out for individuals who are self-employed, that they are eligible to claim work space in home
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| Self-employed court cases |
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Case: Graham 2008 TCC 580
First you have to have a business...
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Case: Kaegi 2008 TCC 566
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| Points to ponder |
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Insurance costs
Reading the insurance policy is always a good idea. Insurance policies often include riders for special assets such as jewellery, boats, bicycles, motorcycles, recreation vehicles and property. Exclude the insurance cost for those extra costs from your claim for reasonable home office costs. Please, please, please put a home office rider on your policy and if your business is a corporation, have the corporation insure for their contents.
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Maintenance costs
Is it appropriate to use a a flat percentage of costs? No, you must allocate expenses between those that are to maintain the whole house including your office and those that are for other areas of the house or for only your office. Each would have separate treatment. If expenses you paid were to maintain part of the house that does not include your office and is never used as a work space, you can’t take a percentage. If expenses paid were to maintain only your work space, then you might be able to claim all or most of them.
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Mortgage interest
If your mortgage has grown due to refinancing, calculate the claimable portion based on the pro-rata discussion in IT533. There is no provision to claim the additional interest from credit card or other debts. Mortgage interest is only claimable on the original mortgage.
CRA Views 2009-0310321E5: Work-Space-in-Home -- Section 18(12), 20(1)(c), 45(1)
090511 CRA Views 2009-0310321E5: Work-Space-in-Home -- Section 18(12), 20(1)(c), 45(1) PRINCIPAL ISSUES: Deductibility of interest on a line of credit that is secured on a principal residence. ...
approx. 4 pages. (more) partial quote...
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where an individual commences to use a portion of his or her principal residence as a work space (i.e. an income-earning use), paragraph 45(1)(c) of the Act generally results in a deemed disposition and reacquisition (at the property's fair market value) of the portion of the principal residence so converted to a business use at that time. However, as described in paragraph 32 of Interpretation Bulletin IT-120R6 - Principal Residence it is the CRA's practice not to apply this deemed disposition rule where all of the following conditions are met:
(a) the income-producing use is ancillary to the main use of the property as a principal residence,
(b) there is no structural change to the property, and
(c) no CCA is claimed on the property.
As such, where an individual commences to use a portion of his or her principal residence as a work space, as described above, an amount of interest on the borrowed money that was used to purchase that principal residence may be deductible as a work space expense. The deductible amount of interest should generally be determined by using the same proportion, determined on a reasonable basis, that the work space (i.e. the current eligible income-earning use) is of the principal residence and taking into consideration the personal use, if any, of the work space.
For more information on these rules please refer to IT-120R6 and paragraph 4 of IT-514. Lastly, where money was borrowed under a line of credit that was secured by an individual's principal residence it remains a mixed question of fact and law as to whether interest on such borrowed money would be deductible under paragraph 20(1)(c) of the Act and whether a portion of such interest, if otherwise deductible, would be subject to the rules in paragraph 18(12) of the Act. However, where the borrowed funds were used to pay for personal items such as a vacation or home improvements that are unrelated to the work space, such as the installation of a swimming pool, no amount of interest would be deductible."
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Property tax deferral
Property taxes deferred are still payable and claimable. In BC, for example, at age 55 we can defer our property taxes, sooner if eligible under the disability provisions. What isn't so clear to me is whether or not the grants should reduce the claim for property taxes. If grants are tax free income, then would they reduce the claim for a cost? I once had someone make the assertion that property tax grants should not reduce the claim for property tax expense on home office costs but I have no idea if it holds water or not.
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PST self-assessment for business use
Self-assessment of costs for business use may be required where for example, utilities are exempt from consumer tax when consumed for personal use, but become taxable when put to business use.
I wonder how many home offices there are in BC and if the same rules apply across the country. If most homes have about $2,000 in utilities per year, and home offices use is about 15%, at 7% PST in BC, that’s a required self-assessment of about $21 per home. $21 per home for 200,000 home offices in BC would be about $4.2 Million. Anyone with time on their hands might want to see how many home offices are registered with muncipalities across the country because each should have a business licence.
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How do our neighbours to the south fare?
Curious about how the IRS looks at home office deductions? Here's a link to the IRS website article on home office deductions for those south of the 49th.
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Claim both Home Reno and Medical Expense in 2009
If something qualifes for medical expenses and also for home renovations tax credit, you will be able to claim both if this amendment in the 2009 Federal Budget is passed.
For more information on the home reno credit see:
http://www.cra-arc.gc.ca/gncy/bdgt/2009/fqhmrnvtn-eng.html
and the amendment to S. 118.2(2)(l.2) proposed in the 2009 federal budget.
You will need pre-approval on those CMHC grants for assistive devices for bathrooms or garden suites!
http://www.cmhc-schl.gc.ca/en/co/prfinas/
Don't forget about the Home Buyer's Plan special provisions for persons with disabilities. See the Home Buyer's Plan
http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html
Get out your hammers!
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| GST/HST ITC claims conditional |
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ITC's on Home Office
Remember to call your residential energy suppliers, i.e. BC Hydro and Terasen or other gas supplier to remove the residential energy credit from your bill. You could be fined for collecting it if you have a home office!
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Residential Energy Credit (BC)
Opt out if you have a home office of you could be fined for accepting this automatic credit!
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