Common building: deduction of costs professional part
January 2023 – If a self-employed person uses a communal building for professional purposes, expenses and depreciation should be limited not only to the professional part but then also to his or her share of the property. There is a special administrative tolerance for buildings in the matrimonial community.
Double restriction?
If you use a building for professional purposes, then the costs (including depreciation) are deductible. If you use the building only partially for professional purposes, then the general expenses are of course limited to that professional part. But what is sometimes forgotten is that the deduction should then be further limited to your share of ownership when you are not an owner, but 'only' a co-owner of the building.
Examples
Suppose you are an employee furnishing a study room, which makes up 5% of your property. You, together with your partner, own the property. If you prove your actual expenses and bring in depreciation, depreciation is limited to 5% of your half of the property....
Suppose you and a business partner own a business in an ordinary home. The property is used by both of you 100% for business purposes ... Then you are both entitled to deduct half of the expenses. Otherwise, the expenses would be 200% deductible ...
Suppose you own a property with your brother. You have the ground floor, where you run a business, and your brother lives in the floor above, but he has nothing to do with the business... Then it is equally logical that the costs related to the house are only deductible for half.
And then if you do not use that downstairs floor itself entirely for professional purposes (e.g. you live in the rooms behind the shop), then your share should also be limited to the professional part.
A double restriction? So yes.
Community of goods
A marriage creates 3 assets: the assets of each of the married couples, plus the common assets. However, you can play a little with those common assets via a marriage contract: you can limit the common assets or even block them altogether. In the latter case, we speak of a total separation of assets. The assets then belong either to one or the other partner, or to both partners together in joint ownership. A community of property goes a touch further than co-ownership, as there is then a complete mixing of property.
What now appears: the administration has always been of the opinion that the double restriction from above (occupational portion x ownership share) should not be applied if the building in question is a common property of the married couples.
Only the limitation to the occupational part comes into play then. Therefore, if you are self-employed and carry on your business in a building that is in the community of property, you only need to take into account the limitation to the professional part to determine the deduction.
A parliamentary question confirms ... or not
The federal finance minister was asked a question about an employee starting to use part of his home for telecommuting. And as might be expected, the minister confirmed that
(a) telework entitles the employee to depreciate the home, and
(b) the double limitation applies.
What he does not confirm is the administrative position that no property limitation is applied to buildings that are in the community of property.
Should we draw consequences from this? The question asked related to an actual case, where the partners were not married. They were therefore co-owners. Actually, therefore, it was not asked whether the tolerance still existed.
On the other hand, it must be admitted that the administrative tolerance is somewhat dated. Different treatment between married couples and cohabitants (legal or otherwise) is discrimination that will not stand up in any court.
So the question is whether the minister consciously or unconsciously avoided the tolerance for assets in the matrimonial community...
General versus specific costs
In conclusion, it is certainly appropriate to clarify that the double limitation applies only to costs relating to the whole building. Depreciation of the acquisition or manufacturing cost of the building is the most obvious example.
Costs relating specifically to the business part of the building (such as heating, electricity, fixtures and fittings, etc.) are of course 100% deductible, as they are also 100% business-related. The restriction in relation to ownership does not apply then.
