Many employees have transitioned to working from home over the course of the current pandemic, which has brought into question whether employees who temporarily worked from home due to coronavirus can deduct home office expenses on their 2020 personal income tax returns. On December 15th, the Minister of National Revenue announced the highly-anticipated details regarding home office expenses deductions, which we have summarized below.
The Canada Revenue Agency (CRA) has made the home office expenses deduction available to more Canadians and simplified the way in which employees can claim these expenses on their personal income tax returns for the 2020 tax year. Employees who have worked from home due to the pandemic, for more than 50% of the time over a period of a least four consecutive weeks in 2020 will now be eligible to claim the home office expenses deduction for 2020. The use of a shorter qualifying period will ensure that more employees can claim the deduction, than would otherwise have been possible under longstanding practice.
Individuals can now choose between a new temporary flat rate method or a new optional detailed method to claim home office expenses.
Temporary Flat Rate Method
A new temporary flat rate method will allow eligible employees to claim a deduction of $2 for each day they worked from home in a given period, plus any other days they worked from home in 2020 due to covid-19, up to a maximum of $400 (or 200 days).
Each individual working from home who meets the eligibility criteria can use the temporary flat rate method to calculate their deduction for home office expenses. This means multiple people working from the same home can each make a claim. This method can only be used for the 2020 tax year. Individuals who use the temporary flat rate method cannot claim any other employment expenses (e.g. motor vehicle expenses).
Days that can be counted include days worked full-time from home and days worked part-time from home. Days that cannot be counted include days off, vacation days, sick leave days and other leave or absence.
Eligibility Criteria for the Temporary Flat Rate Method
Individuals who meet all of the below criteria are eligible to claim a deduction for home office expenses using the temporary flat rate method:
- You worked from home due to the pandemic in 2020
- You worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020
- You are only claiming home office expenses and are not claiming any other employment expenses
- Your employer did not reimburse you for all of your home office expenses
To simplify the process for employees choosing the flat rate method, employees will not be required to:
- calculate the size of their work space
- keep supporting documents
- have their employer complete and sign the simplified Form T2200S and Form T2200
Employees with larger claims for home office expenses can choose to use the detailed method to calculate their home office expenses deductions. The detailed method is used to claim a portion of the actual home office expenses that were paid for the period that was worked from home. Eligible expenses typically include rent, electricity, water, heat, the utilities portion of condominium fees, maintenance, office supplies, and basic cell phone service plan fees. In addition, for employees who earn commission income, eligible expenses can also include property taxes, home insurance and lease of a cell phone, computer, laptop, tablet, fax machine etc.
Expenses that were or will be reimbursed by the employer cannot be claimed. Employees who use the detailed method must keep their supporting receipts, documents and records, including Form T2200S or Form T2200, for six years.
Eligibility Criteria for the Detailed Method
Individuals who meet all of the below criteria are eligible to claim a deduction for home office expenses for the period they worked from home:
- You worked from home in 2020 due to the covid-19 pandemic or your employer required you to work from home
- You were required to pay for expenses related to the work space in your home
- Your work space is where you mainly (more than 50% of the time) worked for a period of at least four consecutive weeks
- Your expenses are used directly in your work
- You have a completed and signed copy of Form T2200S – Declaration of Conditions of Employment for Working at Home Due to COVID-19 or Form T2200 – Declaration of Conditions of Employment from your employer
To simplify the process for employees choosing the detailed method, the CRA has implemented the following:
- A new simplified Form T2200S and Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19
- A calculator to help you claim the home office expense deduction that you are entitled to
- CRA will accept an electronic signature on the Form T2200S and Form T2200 to reduce the necessity for employees and employers to meet in person (applies to the 2020 tax year only)
Form T2200S is a shorter version of Form T2200 that an employer will use if an employee worked from home in 2020 due to the COVID-19 pandemic and chose to use the detailed method to calculate home office expenses. The employer fills out this form upon request to certify that the employee worked from home in 2020 due to the COVID-19 pandemic and was required to pay for some or all of their home office expenses used directly in their work while carrying out their duties of employment during that period.
The new simplified Form T777S is to be used to claim your home office expenses if you are claiming the actual amount paid as a result of working from home and are not claiming any other employment expenses. The existing Form T777 is to be used to claim your home office expenses if you are claiming other employment expenses (for example, motor vehicle expenses), as well as home (work-space-in-the-home, office supplies and certain phone expenses).
.New Eligible Expenses
The CRA has expanded the list of eligible expenses that can be claimed to include home internet access fees. As well, the CRA has specifically identified a list of 59 types of office supplies with guidance on eligibility and ineligibility. Included in the list of eligible office supplies are the following, to the extent they were used while directly performing your job:
- Ink cartridges
- paper clips or binder clips
- pens or pencils
- printer paper
- specialty paper (e.g. graph paper)
- stamps or postage
- stationary items
- sticky notes
For further guidance on how to calculate a home office expenses deduction using the detailed method, including the type of expenses that can be claimed and how to determine the work space use related to working from home, click here.
How to Claim
The home office expenses deduction is claimed on an individual’s personal income tax return. Deductions reduce the amount of income on which tax is paid, so they reduce the overall income tax liability. Form T777S (option 1 for simplified method or option 2 for detailed method) or Form T777 are used to calculate a claim for home office expenses and must be filed with the income tax return. For further guidance on how to claim a home office deduction, click here.
This article has been written in general terms to provide broad guidance only. It should not be relied upon to cover specific situations and you should not act upon the information contained herein without obtaining specific professional advice. Please contact our office to discuss this information in the context of your specific circumstances. We accept no responsibility for any loss or damage resulting from your reliance on the information in this article.