Principal Issues:
1. Can home office expenses be deducted in the taxpayer's particular circumstances?
2. Can non-capital losses incurred in respect of the taxpayer's business be deducted against other sources of income for the year?
Position: 1. Question of fact, but likely yes, subject to the limitation outlined in paragraph 18(12)(b) of the Act.
2. Yes..
Reasons:
1. Subsection 18(12) of the Act.
2. Section 3 of the Act. See also paragraph 1 of IT-232R3.
May 16, 2011
XXXXXXXXXX
Dear XXXXXXXXXX :
I am responding to your correspondence of December 17, 2010, addressed to the Honourable James M. Flaherty, Minister of Finance, which I received on February 9, 2011. I also acknowledge your email correspondence of February 28, 2011, and apologize that I was unable to meet with you.
You indicate that you carry on a business as a writer of books and that this business is interconnected with your XXXXXXXXXX duties at the XXXXXXXXXX . You mention that you incur certain expenses in the course of carrying on your writing business, including home office expenses. Your concern relates to the separate calculation of your net income from employment and from business and to the requirement to complete different forms to calculate the expenses generated by your employment and business.
To respond to your concerns, I am assuming that your home office is, in respect of your writing activities, your principal place of business. In this situation, you are allowed to report all of your home office expenses on Form T2125, Statement of Business or Professional Activities. However, please note that your home office expenses are deductible in any particular year only to the extent that they do not create or increase a business loss. You can carry forward any home office expenses not deducted in a particular year and claim them in the following year if the business is profitable in that particular year. You can find more tax information regarding the business use of a home office in Interpretation Bulletin IT-514, Work Space in Home Expenses, available on the Canada Revenue Agency Web site at www.cra.gc.ca/E/pub/tp/it514.
If you incur a loss for income tax purposes in carrying on your writing business in a year, you can deduct that loss in that year against your other sources of income, including your employment income.
To be able to claim employment-related tax credits, the employment income shown on your T4 slip must be reported separately on your T1 income tax and benefit return.
I trust that the information I have provided is helpful.
Yours sincerely,
Keith Ashfield
Renee Sigouin
(613) 957-2128
2011-039864