As you know by now, our investment philosophy is based on a belief that selecting securities that produce what clients need to meet their goals, regardless of market ups and downs is the way to go. We’ve found that the most effective way to do this is to invest in dividend-paying stocks and fixed income to create steady and predictable cash flow so you have what you need, when you need it.

Now, this is a wonderful strategy for the inflow part of our financial plans, but a big part of having what you need is about managing the outflows. Our careful planning works to also minimize the outflow of your financial affairs and for most Canadians, tax is one of the largest beneficiaries.

And as we move through almost 18 months working from home, let’s chat about your principle residence, also known as your new corporate office. Casual attire aside, we been getting questions about deductions and specifically, how to ensure we’re making the most of the extra resources we’re using to ensure our business affairs are well looked after.

If you are a home owner then it’s extremely likely that you are aware that the Canada Revenue Agency applies a complete tax exemption on any capital gains experienced on the sale of your property, if it is qualified as your principal residence throughout the entirety of your ownership.

But in the past 18 months there has been a significant rise in employees working from home due to the COVID-19 pandemic. If you have never had a home office, then this is new ground for you, likely in many ways. During this year’s tax preparation season the question of how deductions and expenses for the new “home office” will play into tax filing. Let us first state that we are not accountants or tax experts, but we do have a hand-selected team of tax experts if you have particularly complex situation that requires advice. For now, let’s take a look at the impact of the sale of your home and why some of the decisions you make now help later.

If part of your home is being used for business or income generation and you deducted expenses of the home used for that purpose, but you did not claim a capital cost allowance, did not alter the physical structure, and the primary use of the home remains as a principal residence, then CRA will not alter the principal residence designation. In other words when you sell your home at a future date you will not lose your capital gains exemption.

However if you did claim a capital cost allowance, altered the structure in any way, or used it for something other than living in it as your primary residence, then you may need to split the selling price and account for the adjusted cost base of the part that is used for business or income generation. This is done by calculating the square footage of the non-residence part of the home.

In my opinion, the CRA has historically been reasonable with acceptance of this calculation if it isn’t way off base. Given the amount of people now working from home, we anticipate that this question will become a perennial one.  If this applies to you, we can set up a meeting with our tax expert before making any major changes to your filings*.

It’s interesting. While we recognize the critical importance of the need to build assets and establish predictable and steady cash flow, we don’t ever want to lose sight of the need to plan for the outflows as proactively as possible. Achieving a solid balance helps maintain the predictable nature of the plan we are looking for. We go to great lengths to round out our internal expertise and when needed, we have hand-picked professionals  to help fill in the blanks. As always, we’re here.

 

*Clients are advised to seek advice regarding their particular circumstances from their personal tax and legal advisors.