A recent tax case may open up more opportunities for the self-employed to
write off home-office expenses.
The Income Tax Act contains a set of rules that dictate whether or not
certain home-office expenses can be deducted. The rules for deductibility,
however, will depend on whether you are an employee or self-employed.
For employees, if the work space in your home is the location where you
"principally" (more than 50% of the time) perform your duties of employment and
you are "required by the contract of employment" to maintain such an office, you
can deduct certain home-office expenses.
Note that this requirement must be certified by your employer on Form T2200,
which need not be filed with your return but must be kept in case the Canada
Revenue Agency wants to see it later on.
If you're self-employed, the only condition you must meet in order to be
allowed to deduct home-office expenses is that your home office must be your
principal place of business.
If not, then it must be used "exclusively for the purpose of earning income
from business and used on a regular and continuous basis for meeting clients,
customers or patients of the individual in respect of the business."
The eligibility for a self-employed physiotherapist to claim home-office
expenses was the issue before the Tax Court of Canada in a case released last
month.
Marty Ryan works full-time out of a physiotherapy clinic and performs
treatments on between 16 and 20 patients a day at the clinic.
Mr. Ryan also has a home office in which he does all his billing and
accounting. He also uses his home office to fill out insurance and disability
parking forms -- services for which he charges.
In the evenings and on weekends, he uses his home office to return his
patients' telephone calls, often providing them with follow-up or professional
advice by phone. Mr. Ryan testified that he makes an average of three to five
calls per evening and on Saturdays.
The CRA argued that since Mr. Ryan did not actually physically treat patients
at home, he did not meet the conditions necessary to write off his home-office
expenses -- namely, "that the workspace in home was not [his] principal place of
business."
While Mr. Ryan's home office may not have been his principal place of
business since he worked mainly at the clinic, the judge had to decide whether
Mr. Ryan's home office met the alternate test. In other words, whether it was
"used on a regular and continuous basis for meeting patients ... in respect of
[his] business."
Fortunately for Mr. Ryan, the judge concluded that "making telephone calls to
patients each evening and on Saturdays from his home is comparable to meeting
patients directly at his home. ... In my view, we can say that [Mr. Ryan] used
his workspace in his home on a regular and continuous basis for meeting
clients."
The judge allowed Mr. Ryan to deduct the full costs of his home-office
expenses claimed.
This decision may be worth reviewing should you find yourself in a similar
position as Mr. Ryan, with the result that your home-office expenses may now be
tax-deductible -- even if you never physically see clients, customers or
patients at your home.