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Second home used for business

*Technical question

Currently, a portion of a primary residence owned by the sole director of a Corp is being used for business (home office). A small amount of rent is paid by the Corp to the Shareholder yearly for the use of space.

The sole director has purchased a second home, which is being considered to be used entirely for business.

The corporation would pay rent to shareholder @ FMV.

  • Corp will have rent expense
  • The Shareholder will have rental income to claim on T776

Would anyone like to share thoughts/references/legislation/etc? (Thanks Kindly)

This is not a good idea. Reasons below.

A much better way to handle this is to create a reimbursed utilities expense pro-rated to actual amounts and based on square footage.

An alternative is to issue a T2200 and claim employment expense on T777 for Employment Expense.

The reasons not to pay a “RENT EXPENSE” are the following:-

  • Change of use of residence from principal residence to commercial rent.
  • GST applies to commercial rent.
  • Capital Gains implications.

As far as the second home is concerned there are a heap more considerations for business use.

  • City Zoning and Permits.
  • Who should own the property? A Corporation or the individual. The same corporation or a different one?

This is not for the faint of heart. Consider seeking expert advice. Special GST rules may apply as well.

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Thank you greatly for this response!!

You are very welcome.

Whatever route you choose you must document well with policies and signed agreements yearly.

  • Employment Agreement with eligible reimbursed expenses and supporting documentation. Reimbursed expenses are best paid by separate check. Second best, paid by adjustment to shareholder loan. Worst case, included in paycheck.

  • Conditions of employment with detailed requirements and supporting documents re eligible business use details.

  • For reimbursed expense, book to utilities or other expense. Or, to reimbursed employment expense. Be consistent. Document.

1 Like

-Thank you for your response - greatly appreciated to say the least! @dominique_dabolczi

Can you provide an example for

Thanks kindly