Deducting Home Office Expenses During COVID

Across the country, Canadians continue to cope with COVID-19’s second wave and as a result, many employees are still working from home while others are back at home after a brief stint in the office.

As well, a number of companies have already let employees know they’ll be home-based well into 2021 with some suggesting May as the earliest return to the office.

Statistics Canada reported that in October 2020, 2.4 million Canadians that normally work in offices were working from home, and with COVID-19 cases skyrocketing in many regions, it’s likely even more Canadians have returned to their home offices.  

That’s why so many of us have wanted to know how the Canada Revenue Agency (CRA) will handle working from home expenses and have watched for CRA’s ongoing updates.  

In mid-December, the CRA responded to ongoing requests for simplification and clarification from employees, their employers, the Chartered Professional Accountants of Canada (CPAC), the Canadian Payroll Association and other interested parties with a new calculator and the temporary flat rate method which won’t require T2200 or T2200S forms.

“The temporary flat rate method and the new user-friendly calculator will make it easier for more Canadians to claim the deductions,” said National Revenue Minister Diane Lebouthillier in a statement.

If you know your work-from-home expenses will exceed the $400 maximum, you can still make a more detailed claim. Fortunately, the CRA has also made that easier with the new T777S, a calculator and an expanded list of eligible deductions. As an example, home internet access fees are now recognized as a deduction.

“Chartered Professional Accountants of Canada recognizes that the CRA has taken a number of steps to make claiming working at home costs easier for employees and to reduce the compliance burden for those employers who provide T2200 forms to their employees,” said Bruce Ball, Vice-President, Tax, Chartered Professional Accountants of Canada

New and improved in December 2020:

Qualification & Eligibility:

  • You’re eligible if you worked from home more than 50% of the time over a period of at least four consecutive weeks due to the pandemic in 2020
  • More than one person at the same address can claim the working-from-home deduction provided they qualify

Temporary flat rate method:

  • You can claim $2/day for every day you worked at home to a maximum of $400
  • Vehicle expenses are not deductible if you opt for simplified/flat-rate deductions
  • You don’t need to submit T2200 or T2200S forms or have them completed and signed by your employer
  • CRA hasn’t decided whether the simplified deduction will be an option in 2021

“This provides a fair and straightforward way for millions of workers, forced to work from home by the pandemic, to claim tax deductions for which they are eligible. Waiving the employee’s need for a T2200 or T2200S will save employers over $194 million collectively, while enabling them to focus more intently on critical business needs,” said Peter Tzanetakis, president, The Canadian Payroll Association.

If you’re asking:

Can I write off any of these expenses and if so, what’s the process and which ones are eligible?”

…you are not alone!

If your expenses exceed $400 and you’re willing to tackle the forms and administrative tasks required to claim more deductions, you still need to know:  

  • CRA introduced the two-page T2200 Short, a shorter, simpler version of the original three-page T2200 form that you can see here if you want to compare the two.
  • You do NOT need to file the T2200 or the T2200S with your tax return but you need keep it available for the CRA to review upon request.
  • The requirement that you work from home does NOT have to be in writing (a verbal agreement between the employer and employee is now considered acceptable).

You might be surprised at how much you are eligible to deduct. If you’ve been working from home during the pandemic, chances are you’re entitled to deduct a fair bit in 2020. 

If you’re working from home due to COVID-19, you are incurring out-of-pocket expenses. Can you write these expenses off?

Prior to the Pandemic

Under normal circumstances, an employee could only claim home office expenses against their taxes via a T2200 form IF they were contractually required to incur expenses and met one of two conditions:

  1. The employee performs most employment duties from this home office. One example could be a salesperson who works remotely in his/her region and is required to maintain a home office for which the employer provides no reimbursement.

OR…

2. The home office space is ONLY and REGULARLY used for employment (i.e. the space is not used for any activities outside of employment duties).

An example could be a specialty carpenter working for a construction company who maintains a dedicated workshop at home from which s/he produces items that are later delivered to the employer or installed onsite at a customer location.

Generally, there must be a contract stipulating the work-from-home arrangement and a T2200 form provided to the employee by the employer.

Can I deduct home office expenses on my 2020 taxes?

As a result of the COVID-19 pandemic, many Canadian businesses, large and small, have moved to remote work arrangements with staff. Employees that are not usually (or ever) working from home, now find themselves working from home, and in some cases, exclusively.

This means employees working from home are unlikely to have a contractual agreement requiring them to work from home.

And, their employers may not have issued a T2200 before.

So how does this affect your eligibility?

As of now, it doesn’t affect your eligibility, because in view of the CRA’s most recent changes, a verbal agreement regarding working from home is sufficient and while you don’t have to submit Form T2200, your employer needs to sign it and you need to complete it.

What can you deduct?

Eligible expenses related to working from home will include:

  • costs related to your home office space
  • internet connectivity
  • a working phone
  • and more

There’s a litmus test for whether a work-related expense is deductible.

Do you reasonably need to incur the expense in order to do your job?

It is fair to say you could not reasonably do your job without it?

If the answer is YES, the expense is likely eligible as a write-off.

Once you know you are eligible, CRA does classify many work-related expenses as deductible.

All of the following may be deductible if they are necessary for doing your job:

  • Certain supplies and equipment for work
  • Accounting and legal fees for work
  • Work space in the home

Certain exceptions apply. For example, if you have to wear special clothing or have special tools for work, you can’t write those off either.

Also, tax deductions against your income differ for salaried and hourly employees versus commissioned sales employees.

Here is a high-level break down of the differences:

  • Non-Commissioned Employees:
    reasonable portion of rent, utilities, repairs & maintenance, & supplies.
  • Commissioned Employees:
    reasonable portion of their rent, utilities, repairs & maintenance, supplies, property taxes, & home insurance up to the amount of commission income.

The reasonable portion is determined using three criteria:

  • the total size of the home (square footage)
  • the size of the area used for work as a percentage of the total size of the home
  • the length of time you use the space for work as a percentage of the total length of time.

For example, you could …

  • have a home that is 1,000 square feet in size
  • use 250 square feet for work purposes, or 25% of the home’s size
  • work on a full-time work schedule, or 40 hours weekly, for a six-month period

Using this information, along with the expenses you have paid during this time, you can calculate your work-from-home expenses.

If you are uncertain if something can be deducted, Canada Revenue provides a helpful online guide that you should consult.

What should I do next?

To ensure you can take advantage of home office write-offs, documentation should be kept for all deducted expenses incurred in case of a CRA review or audit.


Note that items such as home depreciation, mortgage interest, computer equipment, and home office furniture cannot generally be deducted from employment income as they are capital in nature.


Also, we recommend the following steps:

  • Do your due diligence to understand your responsibilities and eligibility.
  • Ask Human Resources, your boss, or the company owner/leader about the T2200 form.
  • If the T2200 is new to your boss, send them to this or another source of information.
  • Be discerning with your purchases to be sure your expenses are legitimate and truly necessary.
  • Keep ALL documentation, including receipts, and especially the T2200 form, in a safe place. You won’t have to send the form in with your taxes, but you will need one for your records and in case of an audit.

Conclusion

2020 has been a strange year of working from home, social isolation, and home-schooling. Perhaps tax write-offs can provide some small recompense for all of the added burdens, at least in a financial sense.

But don’t go on a shopping spree thinking that you can write-off everything and get a huge tax return. That’s still money you’ll never see again, even if the expense is deductible. Not to mention, you won’t know for sure how a T2200 form will change your tax return until your return is complete.

The CRA’s T2200 form is the key to writing off work-from-home expenses. Make sure you stay on the right side of the CRA!

Finally, watch for CRA updates on this topic as the Government of Canada continues to assess the situation and respond to the concerns of Canadians.