Tania asked:

We are currently renting a house, with a portion used for business (50%) and a portion used for personal use (50%) [percentages based on floor space used by each portion]. We're looking to buy a home, still to be a home based business. Is there a way we can set things up so that the business still pays for a portion of the bills, without owning a final share of the house? Can we rent a portion of the house to the business, with an overall loss? Would this then allow us to write-off some of the interest on the home purchase price as well? The business is an incorporated company.

Brian Bowes answered:

It is still possible to utilize home expenses without requiring shared ownership in the home. Also, you do not need to have the business pay the bills directly in order to recognize the expenses.

In a non incorporated business the situation is quite straight forward. You simply indicate your home expenses on form T2124, and allocate the appropriate % that is for business use. If you own the home, you can also deduct the business use portion of your mortgage interest (not principal) and property taxes.

For an incorporated business, you still determine the amount that is appropriate for business use. The amount calculated will be the same.

Now, the corporation is a separate legal entity. Since you paid these amounts personally, you would make an accounting entry in the books of the corporation to reflect this. The amount would be reflected in the expenses of the corporation (office expense or the like) , and also recorded as an amount owed to the shareholder (assuming the person who incurred the costs was a shareholder). If you have an accountant, they could do this when they prepare your annual tax return.

About the author

Brian Bowes, CMA CFP is currently the Director of Finance for the Writers Guild of Canada. He also provides tax and financial planning services for individuals working in the arts, entertainment and communications sectors.

 
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