Since March, employees across Canada have shifted from working in offices to working from home.
You’ve likely set up your home office with relevant equipment (e.g. desk, chair, monitors). You’re using your home internet. You’re occupying space in your home to work, as well as potentially heating and cooling your home more than you did pre-COVID. You may have expenses you didn’t have before. The question is, Can you write these expenses off?
Introducing the T2200
If you are eligible (i.e. you incur and pay for work-related expenses at home), you are entitled to a T2200 form for tax purposes. Your employer completes the T2200 form and gives it to you to be included in your annual tax filing with the Canada Revenue Agency. Only with this form can you submit work-related expenses as deductions against your employment income. Having a T2200 form makes it possible for you to deduct eligible expenses from your employment income on your tax filing, similarly to a business owner who works from home.
Because of work from home measures during the COVID-19 crisis, more and more workers are
paying out of pocket for work expenses. 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?Tweet
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.
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?
Given the rapidly shifting environment, it appears the CRA may provide an administrative concession by not requiring employers to modify employment contracts with their employees to formalize COVID-19 work from home arrangements.
Further, the CRA may review the requirement to complete Form T2200 for each employee (which may be quite burdensome in the case of companies with many employees). As details on any changes are yet to be announced, Form T2200 should still be completed.
What if I work from home only during COVID?
Again, under normal circumstances, an employee’s eligibility to use work from home expenses as tax-deductible is contingent on the home being the “principle” work environment. This is generally interpreted to mean that the employee is working from home more than 50% of the calendar year.
Law firm, Grant Thornton, reports that “[b]ased on preliminary discussions between the CRA and CPA Canada, however, it appears the CRA may accept that this [50%] test could apply only to the period where COVID-19 measures are in place.” In other words, employees may be able to deduct expenses “for the portion of the year they are working from home due to COVID-19.”
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, Canada Revenue does classify many work-related expenses as deductible. All of the following may be deductible if they are necessary for doing your job:
- Certain motor vehicle expenses (your regular commute does not count)
- Travel expenses related to 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, transportation to and from your regular work location is not deductible. 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:
A reasonable portion of rent, utilities, repairs & maintenance, & supplies.
- Commissioned Employees:
A 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.
- Review your employment contract to see if you are already eligible for the T2200.
- 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.
- Keep ALL documentation, 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.
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 it 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’re in the know!Tweet
Finally, watch out for updates from the CRA on this topic. The Government of Canada has been moving quickly on issues like this and more information may be available at any time.