Olin Packett has decided that he must find a way to earn additional income. While he has a

reasonable salary from his current employment, it is not nearly adequate to provide for the

luxury items that he fee ls he really should be enjoying.

After consulting his know-it-all brother, he concludes that a home-based online business

which provides premium quality organic nut, fruit and candy products would do well. He

opens his website for business on March 1, 2019.

He will operate t his business out of his home. This property was acquired during 2018 at a

total cost of $467,000, of which $130,000 can be attributed to the value of the land on which

the ho use is situated. The business will have exclusive use of 23 percent of the floor space in

Olin's home. Olin does not believe that the value of the property has changed significantly

since its acquisition.

Olin was not prepared for the immediate large orders he receives as he thought business

would be slow to st art. On March 15, 2019, he acquires office, shipping and storage furniture

and shelving at a cost of $42,000. Later that month, on March 27, he acquires an all-in-one

computer at a cost of $1, 940, along with business software at a cost of $467. He also arranges

to have a separate phone line installed for the use of the business. As he meet s w it h more

suppliers and clients, he purchases a tablet for $400 on June 30 to enable him to operate more

efficiently outside his home.

The phone package that he acquires includes the use of a toll- free number for his customers,

as well as unlimited long distance calls in Canada.

For the year ending December 31, 2019, costs associated with owning his home are as

follows:

Utilities For Home (Heat, Light, And Water)

Mortgage Interest Paid

House Insurance

Property Taxes

Repairs And Maintenance For Home*

Total

$ 2,650

14,600

1,300

7,005

13,400

$38 955

*Of the repair costs, $12,200 represents the cost of replacing the aging cedar siding

on the home w it h metal siding. The remaining $1,200 ($13,400 - $12,200) involves

ordinary day to day maintenance (e.g., replacing light bulbs and furnace filters).

During the period March 1, 2019 through December 31, 2019, his sales total $233,000.

Costs associated with these sales are as follows:

Cost Of Merchandise Purchased

Unsold Merchandise At December 31, 2019

Packaging Materials

Shipping Costs

Office Supplies

Telephone (Total Charge For The Period)

Advertising In Various Canadian Media

Insurance On Business Inventories

Cleaning Services For Office And Shipping Space

Meals And Entertainment For Suppliers

Credit Card Fees

Estimated Bad Debts

$1 16,014

16,327

4,206

8,354

3,210

862

6,438

423

3,250

2,450

2,300

1,450

Olin's parents have been helping him by taking orders and packaging product for shipping.

They refuse any payment for their work as they are both bored with the retirement life and,

unlike their son, feel they have more than adequate income for their modest needs.

Required:

A. Can Olin deduct work space in the home costs? Briefly explain your conclusion.

B. Compute the minimum net business income or loss that Olin must report in his 2019

personal income tax return .

C. Briefly describe any issues that should be discussed with Olin concerning the work space

in his home and business costs.