Shareholder/Director of a corporation exclusively uses one bedroom in their home as a business office. In addition, to this office they have a commercial space where they sell goods and services.
The home office is not the principal place of business and it is not used on a regular and ongoing basis to meet customers.
It is used for administrative tasks including emails, website maintenance, purchase orders, etc (business work that can be done on a computer).
The size of the office is a little under 10% of the home and the proportional expense of the office works out to a little over $1000.
Does anyone have experience with this or can guide me in the direction of legislation or a court case that is for or against this expense?
This article gives a summary of tax legislation and cites a couple of cases.
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I will wait for Joe to come up with the specific section of law that relates to this. First, though, you should change your wording from âshareholderâ to âOfficer or Directorâ or face the wrath of Joe.
The office space must be âat leastâ 10% and must be used âexclusivelyâ for business.
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@NiceGuy, and with all due respect to comments by @obhorst, one thing to be careful about with tax questions is to frame them âpreciselyâ. The question you are asking is actually (I think):
âThe corporation uses a bedroom in the home of a shareholder/director (who is also likely an employee of the corporation) as an administrative office. In addition to this the corporation also has a commercial space. Can the corporation claim a portion of the operating cost of the residence as being for the rental and use of an office?â
The answer to that may well be a very different one from that framed by you where the âShareholder/Director uses one bedroomâŚâ.
It is the corporation (presumably) that seeks to claim the expense, not the individual. (And to complicate mattersâŚwhen referring to an individual who is both an employee AND a shareholder or director, it is important to note âwhich hatâ the person is wearing for purposes of the question.) Rules that apply to corps are different than in the personal context, and rules that apply to shareholder/employees MAY be different than an arms-length employee.
One approach to this would be for the individual to rent the âofficeâ to the corporation for an amount, report the rental revenue, deducting offsetting expenses on personal tax, preferably with NIL net income. The corporation deducts the rent paid. A formal rental agreement will help, but is not, in and of itself determinative. It can be annual or month-to-month and preferably written.
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If the corporation rents the âhomeâ office, there could also be GST/HST issues depending on the details of the Shareholder/Directorâs relationship with the corporation assuming the corporation is a registrant.
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@helga_spence Would you mind clarifying that, please? Say I am an officer of the corporation, and the corporation operates out of space in my personal house. I personally pay the tax and utilities, and the corporation reimburses me for the appropriate portion of tax and utilities, would the corporation be entitled to claim HST on the reimbursed expense?
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Bare Trust/Nominee Corporationsâ˘
- In many cases legal title to real property may be held in the name of a corporation acting as nominee or bare trustee for the beneficial owner(s).
- If the bare trustee or nominee has no discretionary powers and all powers or responsibilities to manage the trust property are retained by the beneficial owner(s), the CRA will consider the beneficial owner, rather than the bare trustee, to be involved in commercial activities related to the trust property.
- This nominee corporation may take all actions necessary to facilitate the acquisition, financing, leasing and sale of the particular property as agent for, and under the instructions of, the beneficial owner(s).
- As a result of this arrangement, the nominee corporation is typically shown as the mortgagor, lessor and/or purchaser/vendor on all agreements pertaining to the property.
- In this case the beneficial owner generally
would:
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be required to register for GST/HST;
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collect and remit the GST/HST payable; and
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be eligible to claim any related input tax credits under the normal rules
- The bare trustee would not be considered to be engaged in a commercial activity in respect of the trust property, and therefore would not be allowed to account for the GST/HST in respect of the trust property.
My client new client had a single shareholder corp. The CGA firm he left reported $36,000 in management fess (which should have been run through payroll) but issued T4Aâs for $30,000 three years in a row. This firm prepared the T2 and the T1.
The above may or may not apply to your situation.
If the shareholder/director is the only shareholder, I would suggest that he would be required to collect HST/GST for the home office rent. It would be a wash transaction since the corporation gets the ITC but someone has to complete HST/GST returns for two registrants, not just the corp.
I had an AB client who had to register under these circumstances and CRA was (surprisingly) gracious because they were wash transactions.The was asked to charge GST for the current calendar year â the corp and rental both had a Dec 31 year end date â and do things correctly moving forward.
More work for meâŚ
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Thank you all for your responses they are greatly appreciated!