This week, the Canada Revenue Agency released new guidelines making it easier for employees who have been working from home as a result of COVID-19 to claim home office expenses on their 2020 personal tax returns. Here’s everything you need to know, including the details of a new, simplified, no-calculation option.
Under the Income Tax Act, an employee who is required to pay for employment expenses, including expenses for a home office, for which they are not reimbursed by their employer, may be able to claim a deduction on their return for such expenses. For a valid claim, the employee must generally obtain from their employer a properly completed and signed CRA Form T2200, “Declaration of Conditions of Employment.”
This week, to ease the burden somewhat on employers, the CRA introduced a shorter version of Form T2200 — Form T2200S – Declaration of Conditions of Employment for Working at Home Due to COVID-19 — that employers can use if you worked from home in 2020 due to COVID, you choose to use the “detailed method,” as discussed below, and you do not claim any other employment expenses. It’s a simple, one-page form, that asks three questions of the employer. The CRA announced that it will accept an electronic signature on the Form T2200S (and Form T2200) to reduce the necessity for employees and employers to meet in person for 2020.
Home office expenses
To be entitled to deduct home office expenses, an employee must be “required by the contract of employment” to maintain such an office, as certified by the employer on the T2200. It must also be either where she “principally” (more than 50 per cent of the time) performs her duties of employment or the space must be used exclusively to meet customers on a regular and continuous basis in the course of employment.
This week, the CRA announced that even if you were not required to work from home, but your employer provided you with the choice to work at home because of COVID-19, the CRA will consider you to have been required to work from home for purposes of claiming home office expenses for 2020.
The CRA also announced two methods for claiming home office expenses for 2020: the new “temporary flat-rate method,” and the “detailed method.”
Temporary flat-rate method
You’re eligible to use this new method if you worked more than 50 per cent of the time from home for a period of at least four consecutive weeks in 2020 due to COVID. Under this method, you simply claim $2 for each day you worked from home, up to a maximum of $400 (i.e. $2/day for up to 200 working days) per individual.
More than one family member working from home? Each individual working from home can use the temporary flat-rate method to calculate their deduction for home office expenses and can each make a separate claim for up to $400.
The benefits of using the flat-rate method are that you do not have to track and keep any supporting documents to track your expenses nor do you have to allocate any expenses between employment and personal use. In addition, you don’t need a signed T2200S form from your employer.
Under the detailed method, you must have worked from home more than 50 per cent of the time, for a period of at least four consecutive weeks in 2020, and have a completed and signed Form T2200S (or Form T2200) from your employer.
If you choose the detailed method, you’re able to deduct a variety of expenses, such as the cost of rent, electricity, heating, home internet access fees, water, as well as maintenance and minor repair costs. Commissioned employees can also deduct home insurance, property taxes and leasing costs associated with a cell phone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning commission income. Of note, however, no employees can deduct mortgage interest nor capital expenses or depreciation (capital cost allowance), meaning you can’t deduct that new ergonomic chair, widescreen monitor or headset.
Where there’s a mixed personal and work element to an expense, you can only claim the portion of the expense that can be reasonably allocated to employment use. For utilities, rent and other expenses, you need to allocate the expenses on a “reasonable basis,” which is typically done by taking the area of your work space, divided by the total finished area (including hallways, bathrooms, kitchens, etc.) of your home.
In addition to home office expenses, the CRA has provided a list of 59 common home office supplies, detailing which expenses are deductible (e.g. envelopes, folders, paper clips, highlighters, ink cartridges, etc.) and which expenses are not deductible (e.g. printers, webcams or houseplants).
Which method should I choose?
While at first glance, $2 per day may seem like a pretty small amount to claim as a home office expense, for employees who own their home rather than rent, it’s likely quite generous (and simpler!) than using actual pro-rated, expenses.
For example, say Sacha is a homeowner who has been working from home since March 16, 2020. He works at his kitchen table, which accounts for 20 per cent of the total square footage of his house. Since his kitchen is not used only for work, he must also consider the percentage of the employment use of the space. As he works 42 hours per week, out of a total 168 hours in the week or 25 per cent of the time, his percentage of the home that is considered to be used as a work space is 5 per cent. If he paid $500 monthly for utilities (home internet, electricity, heat and water) for 9.5 months in 2020, his employment portion would be $238 (i.e. $500 X 9.5 X 5 per cent). Sacha would be better off claiming $2/day for 200 days or $400, with no need to track receipts or having to obtain a signed T2200 from his employer.
Contrast that to Britt, who has also been working from home since March 16, 2020 and is a renter. She pays $2,850 monthly for a two-bedroom condo in Toronto, and spends an additional $150 on home internet and electricity. She works in her second bedroom, which occupies 25 per cent of her condo’s total square footage. As this room is used exclusively for working from home, her claim is not altered by the time the room is used personally. Her deduction for 2020 would be $7,125 (i.e. $3,000 X 9.5 months X 25 per cent) under the detailed method and she would require a signed T2200S from her employer.
The CRA has created an online calculator to help calculate your 2020 home office expense deduction.