2 (27 Marks)

Mr. Alex Andrews wanted to start a home based business that would specialize in selling posters. The business would be operated from his principal residence. He set aside 10% of the total floor space in the residence for the poster operations.

Mr. Alex Andrews' principal residence, costing $ 850,000 in total, was acquired on January 01, 2017. It is estimated that $ 250,000 of this total value can be attributed to the land value.

Mr. Alex Andrews incurred the following 2017 costs relating to the principal residence:

The business commenced operations on March 01, 2017. On that date, Mr. Alex Andrews purchased the following assets to be used in his new business:

In addition, Mr. Alex Andrews had a separate telephone line installed for dealing with the mail order business.

During the period March 01, 2017 through December 31, 2017, Mr. Alex Andrews' mail order sales totaled $ 500,000. Costs associated with these sales included the following:

Required:

A. Can Mr. Alex Andrews deduct work space in the home costs? Briefly explain your decision.

B. Calculate Mr. Alex Andrews' 2017 minimum net business income or loss that he will report on his 2017 income tax return.

C. Briefly discuss any issues that should be discussed with Mr. Alex Andrews regarding the work space in his home and business costs.