For my corporation client, shareholder uses one room of her home as office. I know deductible expenses include utilities, insurance, property tax, mortgage interest based on area of the workspace divided by total area of the home. But in 2022, she did renovation to this home office such as changing the floor and window. The total cost is around $12k. I am wondering if these reno costs are deductible as home office expenses in FS and T2.
Thanks!
Tax is a legal matter.
A corporation does not have a “home”.
Therefore it does not have ANY “home” expenses to legally deduct.
Furthermore, “shareholders” could conceivably have “investment expenses”, but not “home office” expenses.
Please refer to contract and corporation law.
Also to the specific legal provisions of the Income tax act.
The way I see it, the corporation RENTS the home office space from the home owner (in this case also a shareholder / director). For my own home based corporate tax business, the rental charge to the corporation is just below the amount of business use of homes expenses (claimed on the T776 personal return) so that the Net Rental Income is always a small net loss so I’m not paying personal tax on this extra income. I always override the net loss to $0.00 so that I’m not using the office rental to reduce other income and obtain an advantage on my personal return.
The office renos are capital in nature and thus not immediately expensed on the T776 (nor capitalized on the T776) and not applicable to the corporation since the corporation does not own the home. Rather, the renos are applied to the adjusted cost base of the home and used when the home is sold to reduce any capital gains on the rental portion of the home. However since the rental portion is only one room and thus less than 50% of the home, the entire property qualifies for the principal residence exemption and thus no capital gain on sale for the rental portion of the home needs to be assessed. The rented room should not be capitalized on the T776.
Hope this helps.
The rental charge to the corporation should be a fixed cost that may or may not result in income for the home owner.
Any chance it could be considered a leasehold improvement, thoughts?
Thanks Kozakworld, very helpful!
Thanks Obhorst, it is a good idea to charge a fixed rent as long as it is lower than the actual amount of business use of home expenses.
Thanks joe.justjoe1, I agree with you that we need to be careful about using the name “home office expenses” for corporation.
I am also interested in whether this is correct? Would the corporation using the leasehold CCA in the corporation cause any issues for the PRE for the landlord (shareholder)
I have used leasehold imporvement to write off renovations to office for business use. I have not been questioned on this when I am doing bookkeeping where an accountant prepares the tax. But I surely don’t want to mess with the PRE.