I established a corporation for my eCommerce business and used my property’s address as the corporation’s official address.
Despite this, the property remains the principal residence for myself and my family, with the eCommerce operations managed solely through my laptop. I’m also a home-based employee and using the laptop provided by my employer.
Would the establishment of the corporation be considered a change of use of the property in this scenario?
While:
no structural modifications were made,
I won’t be claiming any Capital Cost Allowance (CCA).
Additionally, I won’t be charging the corporation for any expenses related to the use of my property (such as rent or utilities).
My inquiry is specifically related to this article:
When it says, “business use of the property is relatively small in relation to its use as your principal residence.”.
It’s not clear what percentage or ratio constitutes a relatively small use of property.
Does this article apply only when the property is used as a rental property or in B&B business when the property is the main driver of the business income?
Changing an address would not be a partial change of use of the property. Even running your business from the house would, in most cases, not trigger a change in use of the property. It would likely be deemed incidental use of the property. This becomes an issue when the business use of home becomes a greater % of the home (measured primarily by space used, not by the amount of income generated from the home office use).
I normally tell clients to start giving consideration to the issue when the space used by the business is 30% or more. I’m not saying that’s the percentage that triggers a change in use. I’m just saying they should consider the issue as the percentage of business use increases. Every business is different so it’s difficult to say what that threshold might be for you.
To the best of my knowledge change of use of your principal residence refers to income received by you personally for that business use. For example, residential rental income if you had a individual tenant, or, corporate rental income if your corporation paid you rental income. Even if you made structural changes to your property that would not me claimable by the corporation unless it was of a rental contract between you personally and your corporation. Obviously, neither is recommended.
Some expenses originally paid by you personally may be claimable by your corporation for expenses such as utilities or telecom.
One way to do this is to claim these expenses would be to pay yourself a year end bonus salary and claim the expense utilities and telecom expenses on your personal tax return as employment expense. You would need to document everything and pro-rate amounts based on a combination of square footage and hours or percentage of use. Document everything.
Another method would be to create an employment agreement and include reimbursed amounts for claims for business use expenses such as telephone, internet, business kilometers. In this case you pay these expenses personally and use for partial business use. Your corporation reimburses you. Again, prorate and document everything.