If you are self-employed, can you deduct home-office expenses from your
taxable income if you have another office elsewhere? That's what Dr. Thomas
Vanka of Montreal wanted to do, and he took the government to court to make
Under the Income Tax Act, home office expenses are deductible for income tax
purposes only if your home is your principal place of business, or if the
home office is used exclusively for your business and is used "on a regular
and continuous basis for meeting clients, customers or patients."
In their February Tax Letter, Markham accountants Kestenberg, Rabinowicz &
Partners explain that if the "regular and continuous" test is met, a
taxpayer can deduct expenses based on the fraction of the home that is used
for the office.
So if your home office measures, say, 200 square feet, and the home or
condominium is 2,000 square feet in total, 10 per cent of the home expenses
may be deductible.
Among the expenses that can be claimed are rent, mortgage interest, home
insurance, property taxes, electricity, heat, water, gas, telephone,
gardening, snow removal, maintenance and minor repairs.
Until now, it was generally accepted by experts in the tax field that the
"regular and continuous" test required customers, patients or clients to be
physically in your home office on a regular and continuous basis.
That rule, however, appears to have changed thanks to the income tax appeal
In a recent decision involving the doctor's 1994 and 1995 tax returns, the
Tax Court of Canada allowed the doctor to deduct home office expenses, even
though he had his primary office elsewhere.
Vanka has his main downtown office on Drummond St. He sees patients there
Monday to Friday between 8 a.m. and 7 p.m. His home office is a
self-contained unit measuring nine feet square in a two-bedroom cottage in
the Town of Mount Royal.
Vanka has been a family physician for the past 25 years. His patients are
primarily elderly and psychologically unstable, and they require constant
access to their family doctor.
When his case went to tax court, Vanka told Judge Lamarre Proulx that he
receives an average of seven calls every evening, and sees one patient per
week at his home office.
Vanka explained he considered his home office to be an extension of his
downtown office. The phones and computers in each location are linked, and
the computerized patient files can be accessed from Vanka's home as well as
When a patient calls him at home, the doctor can check the effectiveness of
the patient's medication, call in new prescriptions, monitor the patient's
progress, discuss the case with the family involved, listen to problems and
provide medical advice.
In problem cases, correspondence with specialists is completed in the home
Vanka also uses his home office for administration purposes, since there is
seldom time for that part of his work while he is downtown.
Despite the good arguments in favour of deducting the home expenses, the
Scrooges at Canada Customs and Revenue Agency (CCRA) denied Vanka the
deduction, so he appealed to the tax court.
In an outburst of common sense, the court ruled that seven phone calls every
evening were enough to constitute "regular and continuous" use of the
office, and Vanka's home expenses were allowed. A meeting, said the court,
did not require the patient to be physically present. Meetings could take
place by telephone, or presumably by computer in appropriate cases.
"It is my view," wrote the judge, "that if the seeing of a patient on an
average of once a week at the home office could not suffice to make it a
regular and continuous use of the home workspace, the receiving of an
average of seven phone calls an evening by patients may be considered such a
regular and continuous use of a home workspace.
The phone calls could not be taken without the use of the home workspace
since the patients' files have to be reviewed and completed."
According to the Kestenberg Rabinowicz Tax Letter, the case is a surprising
but welcome development. Even if it is not appealed, CCRA could still choose
to ignore the case because it was decided under the court's informal
In fact, Vanka won his case without being represented by a lawyer, and CCRA
suffered its loss while being represented by a law student.
More and more employees and self-employed people in today's workforce use
their home offices in addition to a conventional office elsewhere.
The City of Toronto recognized this development several years ago when it
created a live/work designation in the city's zoning bylaws. With this
zoning, it is legal to use a home office as a workspace and a place for
meeting clients where previous zoning regulations would have made this kind
of use technically illegal.
As tax season approaches, the Vanka case provides two useful reminders.
First, if you are self-employed and have a second office in your home, and
you use it for telephone meetings or possibly even online meetings via
computer with your clients or customers, you might be able to deduct home
office expenses when filing your tax return.
Second, and even more important than the first reminder: Income tax is a
very complicated area, containing minefields for taxpayer and government
alike. Always see a professional accountant with income tax experience. In
the long run, it's worth the expense.
Bob Aaron is a leading Toronto real
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