Work Space in Home and Elsewhere

If a self-employed individual has a place of business in the home and a place of business outside the home, which location is the principal place of business? Generally, the taxpayer will prefer that the home office be considered the principal place of business. However, some CRA and Revenu Québec (RQ) opinions suggest that this choice might be challenged, but it may be too early to say.

One benefit of having the home office as the principal place of business is that it satisfies the test for the deduction of home office expenses (subsection 18(12) of the ITA and section 175.4 of Quebec's Taxation Act (TA)). The only other way to claim home office expenses is to establish that the home office is used exclusively for business purposes and is used regularly and continuously for meeting clients, customers, or patients--a more difficult test to meet.

A second benefit of having the home office as the principal place of business is that travel expenses from the home office to the other office (that is, commuting expenses) are deductible from business income (see QRA Guide IN-155-V, "Business and Professional Income," paragraph 6.12.1; Interpretation Bulletin IT-521R, paragraph 24; and Mompérousse (2010 TCC 172)).

In Jenkins v. The Queen (2005 TCC 167), the CRA had denied the deductibility of home office expenses to a fisher on the basis that his boat, not his home, was his principal place of business. The court focused on the question of where the business activities (invoicing, payroll, etc.) took place and concluded that the boat was not a place of business, much less the principal place of business. The implication of this case appears to be that a home office could qualify as a principal place of business even if some of the business's activities take place elsewhere. Paragraph 2 of Interpretation Bulletin IT-514 supports this view and uses the examples of a contractor and farmer who have home offices as principal places of business.

In CRA document 2011-0393331E5, the taxpayer did most of her work in her home office; however, she met 80 percent of her clients in a rented office, which she used to ensure confidentiality and to be closer to her clients. The CRA's opinion was that the rented office was a principal place of business, and therefore travel expenses between her home and the rented office were not deductible. In CRA document 2008-0279741E5, a ship's pilot wanted to deduct travel expenses between his home and the boat's embarkation point. The pilot was a partner in a partnership that operated a business of piloting maritime transport. The partnership's office was used only by administrative staff; the pilots received their assignments by telephone at home, where they were carrying out preparatory work for navigational activities. The CRA concluded that the pilot's home could not be his "principal place of business." Moreover, the CRA stated that "[i]f a taxpayer has an office or a fixed place of business elsewhere, the CRA generally concludes that his home cannot be considered his principal place of business." (My translation.)

Similarly, in the January 2013 release of Guide IN-155-V (cited above), RQ stated that "if you have an office or fixed place of business other than your home, your home is usually not considered your principal place of business." (My translation.) (Three exceptions are cited in the guide, but in all three cases the self-employed person has no other fixed place of business.)

Maude Caron-Morin
Joli-Coeur Lacasse LLP, Quebec City

Canadian Tax Focus
Volume 3, Number 3, August 2013
©2013, Canadian Tax Foundation