COVID-19 | Working from Home? Important Tax Considerations

STATUS UPDATE – December 15th, 2020

As part of the Federal Government’s “Fall Economic Statement”, which was released on November 30, Canadians will soon find a much easier tax credit for those who have been working from home this past year.

CRA has now released full details on the new Temporary Flat Rate Method to simplify the deduction for home office expenses for the 2020 tax year.

You are eligible to claim a deduction for home office expenses if you worked more than 50% of the time from home for a period of at least four consecutive weeks.  You can claim $2 for each day you worked from home during that period, plus any additional days you worked at home in 2020 due to the COVID pandemic.  The maximum you can claim using the Temporary Flat Rate Method is $400 per individual (200 working days).

If your actual expenses appear to be greater than $400, you will need to follow the requirements under the existing Detailed Method for calculating Employment Expenses, which includes Home Office Expenses.  See below for more information on the Detailed Method…

The COVID pandemic has certainly changed the world we live in.  As a result, many people have been working at home and using their home (kitchen table, end table, chair and ironing board) as an office. 

CRA was quick to announce in April 2020 that, due to the COVID crisis, employers can reimburse up to $500 of the cost of personal computer equipment to help enable the employee to work at home.  This reimbursement will not be taxable to the employee.

Generally speaking, if your employer reimburses you for costs that you have incurred as your perform your work duties from home, you will not be able to claim any deduction on your tax return.

What expenses qualify for a tax deduction?

HOME OFFICE EXPENSES

Possible home office deductions are as follows:

Employees Commissioned Sales People Self-Employed / Corporations
Rent X X X
Utilities X X X
Repairs and Maintenance X X X
Telephone X X X
Supplies X X X
Home insurance X X
Property taxes X X
Mortgage interest X
CCA X

 

Where your employment contract requires you to maintain an office in your home, you can claim home office expenses, provided you meet certain conditions:

  1. Form T2200 – the employer must sign this form confirming that you are required to have a home office.  
  2. The home office must be the place where you “principally perform the duties of employment”, or use the space on a regular and continuous basis for meeting customers or other people in the ordinary course of your employment.

The way in which we operate and work from home has changed significantly during the COVID crisis.  In the past, it was quite difficult for an employee to meet the conditions noted above.  However, many taxpayers may file their 2020 tax returns and take a position that they do meet these conditions, which will force CRA to decide on a few issues…

    • In the past, we would look at the amount of time spent in the home office over the entire year to determine where you “principally perform” your employment duties.  However, the Income Tax Act is not clear on this point, leaving an opportunity to argue that home office expenses should be allowed for the weeks or months during the year that you worked at home.
    • There have been a few court cases that held that “meeting” people includes telephone meetings.  CRA has historically stated that they do not accept these decisions, but one could argue that video conference meetings are different and should qualify.

To calculate the percentage of home office expenses you can deduct, use a reasonable basis, such as the area of the work space divided by the total finished area (including hallways, bathrooms, kitchens, etc.). For maintenance costs, it may not be appropriate to use a percentage of these costs. For example, if the expenses you paid (such as cleaning materials or paint) were to maintain a part of the house that was not used as a work space, then you cannot deduct any part of them. Alternatively, if the expenses you paid were to maintain the work space only, then you may be able to deduct all or most of them.

Note that your tax deduction cannot exceed your total employment income from the employer that has signed and issued the Form T2200.  Any excess deductions can be carried forward and claimed against income from that employer in a future year.

OTHER EXPENSES

There are a number of other expenses that relate to working at home, which can be deducted if required by your employer as noted on Form T2200:

  • Salary of an assistant (if required by your employment contract)
  • Cost of supplies – if you are required to supply and pay for these items

OTHER NOTES

  • Claiming CCA is possible in certain situations but often not advisable.  When the home is sold there could be recapture of CCA claimed previously.  In addition, the portion of any capital gain on the sale of the home that relates to the portion used for business will not qualify for the principal residence exemption.
  • For employees and commission sales people, in order to deduct the home office expenses they must have paid for them under their contract of employment and the expenses must be used directly in their work and their employer has not and will not reimburse them.  In addition they must provide form T2200 – Declaration of Conditions of Employment, signed by their employer.


For more information, please give us a call or book an appointment here to discuss with us – either over the phone, through zoom, or in-person with a mask.

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