Business Home Office - What Expenses Are Deductible?
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A Tax Court of Canada case reviewed various deductions claimed against a taxpayer’s business income derived from engineering and arbitration services related to the business use of his home. The taxpayer and the CRA had agreed that 35.83% of the home, mainly the basement which was used as a business office, was used for business purposes.
The CRA had disallowed gardening and swimming pool maintenance costs which the taxpayer argued were business related as he met clients at his home and sometimes conducted arbitrations in the garden. He also argued that there was no personal use of the pool, but clients sometimes used it. CRA had also disallowed costs for repair and renovation of the living room, which the taxpayer argued made that room suitable for hosting arbitrations.
Taxpayer wins – in part
The Court accepted that the gardening expenses were ordinary home maintenance costs, deductible in proportion to business use of the home (35.83% as noted above), allowing a deduction of $1,271. The pool expenses were not allowed, on the basis these were not ordinary expenses of a business of this nature, and the Court was not convinced that clients used the pool. It was not relevant that the taxpayer and his wife did not use the pool.
Claims for repairs and renovations to the living room were denied as the taxpayer had ample space in the basement office and the garden to host arbitrations and conduct his other business activities. The living room was not part of the floor space making up the agreed 35.83% business portion of the home. As well, the evidence showed the renovations were required to comply with city regulations, including removal of a wood fireplace.
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Consider which portions of the home, and which expenditures clearly tie to the business use of your home. Retain and obtain documents (like client emails and photos of work-spaces), which demonstrate how different portions of the home were used for business, and to what extent.
Nicholas Kilpatrick is a partner at the accounting firm of Burgess Kilpatrick in Vancouver, B.C. He concentrates his practice on assisting business owners with accounting services, tax and estate planning and overall business development. This article was sourced from www.scotiabank.com/small business centre.