For tax purposes, a director-major shareholder’s (DMS) home office is considered part of that property, unless it is a separate office. Furthermore, the DMS must generate a significant proportion of their income in or from that office.
Self-contained workspace
A workspace can only be considered independent if the space could also be used as such by someone other than the director-owner. For example, there must be a (more or less) separate entrance. And the space must have all the facilities necessary to carry out work there. This primarily concerns toilet and kitchen facilities.
It will be clear that a bedroom converted into a study is not sufficiently separate.
Use by employees and business associates
Arnhem-Leeuwarden Court of Appeal has recently ruled that this is not the case when the workspace in the director-major shareholder’s home is also used by employees and business associates. This case concerns a director and major shareholder who lets the ground floor of his own home to his private limited company. He declares the rental income in his income tax return as income from other activities (under the ‘making available’ scheme). The costs associated with the workspace are deductible.
At the end of the tenancy, a loss arises which the director and major shareholder wishes to deduct from his income. The tax authorities do not agree with this. They argue that this is not a separate workspace, meaning that, for tax purposes, it has remained part of the director and major shareholder’s own home.
However, the Court ruled that the decisive factor is that employees and business associates make use of the office. The requirement that the office must have its own (sanitary) facilities applies only to the director and major shareholder. The Court therefore allowed the loss to be deducted.