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In order to supplement his income working in a Toronto bookstore, Mr. David Sanderson has decided to start a home-based business that will specialize in selling used textbooks to university and college students. The business will be run out of space that he has set aside in his residence. This space involves 18 percent of the total floor space in the residence. The residence was acquired on January 1, 2019 at a total cost of $426,000. It is estimated that $150,000 of this total value can be attributed to the land on which the residence is situated. For the year ended December 31, 2020, Mr. Sanderson has the following costs that can be associated with this residence: Utilities for Home (Heat, Light, and Water) $ 3,200 Mortgage Interest Paid 10,100 House Insurance 500 Property Taxes 4,300 Repairs and Maintenance for Home 2,600 Total $20,700 The business begins operations on January 31, 2020. On that date, Mr. Sanderson acquires the following assets to be used in his new business: Office Furniture and Storage Racks $18,500 Computer 1,430 Business Software 570 In addition, he has a separate telephone line installed for dealing exclusively with the mail order business. The telephone charge includes charges for a toll-free number and a long distance package. During the period January 31, 2020 through December 31, 2020, his mail order sales total $182,000. Costs associated with these sales are as follows: Cost of Merchandise Sold $98,000 Unsold Merchandise (Lower of Cost and Market) 23,500 Packaging Materials 2,400 Shipping Cost 4,600 Miscellaneous Office Supplies 560 Telephone (Total Charge for The Period) 1,100 Printing of Posters and Brochures Distributed 420 Required: A. Can Mr. Sanderson deduct work space in the home costs? Briefly explain your conclusion. B. Compute the net business income or loss that Mr. Sanderson must report in his 2020 personal income tax return.

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