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Income Tax Act regulations
Expert: John R Mott
Andy asked:
In calculating Work space in home expenses is there a requirement under the income tax act to calculate the number of hours spent working in my office space [at home] to get the deduction amount?
The business & professional guide[T4002]from CRA states for line "9945" that....
"Monique runs a business in her home weekdays from 7:00 a.m. to 5:00 p.m. (10 hours out of a 24-hour day). The business uses an area of 35 square metres. The house is 100 square metres, and the annual household expenses are $5,800.The calculation is as follows:
10/24 hours Ч 35/100 metres Ч $5,800 expenses = $845.83
The business operates 5 days a week, so Monique has to do another calculation:
$845.83 Ч 5/7 days = $604.16
Monique can deduct a total of $604.16 for household expenses."
Is this true? I can't seem to find it the income tax act or any "IT-bulletin [I read at IT-514 and the act part 8 at http://www.canlii.org/ca/sta/i-3.3/sec8.html].
My understanding is it is just a calculation of the square footage or rooms used to carry on a business...and not this hourly thing.
John R Mott answered:
The Income Tax Act does not address how to do the calculation. The exercise is to apportion expenses between business and personal use on some reasonable, supportable and rational basis. If there is space in your home that is dedicated exclusively to business use, then introducing an hourly factor would seem to be inappropriate.
Since your home is primarily intended for personal use, however, it is technically only the incremental costs that you incur on account of the business use that should be deductible. One could argue that the floor area pro-rations normally accepted by the tax authorities is very generous by this standard. Remember that the CRA will not permit any part of a basic telephone service to be deducted, no matter how much the line might be used for business.
About the author
John Mott is a chartered accountant and tax specialist with a private practice in mid-town Toronto. He provides tax, accounting and advisory services to individuals and small businesses. He may be visited online at: johnmott.com.