Many employees have transitioned to working from home over the course of the current pandemic. This transition begs the question, can employees who temporarily worked from home due to coronavirus deduct home-office expenses on their 2020 income tax returns? The following article explores the rules surrounding home-office deductions as they currently stand, details regarding discussions taking place with respect to amending certain rules and the tax implications around allowances and reimbursements provided to employees during isolation protocols.
Home-Office Deduction
Existing rules require that a remote employee must meet two main criteria to be eligible for home-office deductions. The home office space must be used for work by the employee more than 50% of the time and the space must be used exclusively to meet clients on an ongoing and continuous basis over the course of employment. Each of these points becomes complex through the lens of the coronavirus pandemic.
The CRA (Canada Revenue Agency) has yet to clarify whether an employee must work from home more than 50% of the time throughout the calendar year, or if this test can be applied only to the period during which social distancing measures have been in place.
To add, the CRA’s pre-pandemic position is that to qualify for the second point, employees must meet clients in person and that phone calls, video chats and emails do not meet the requirements. Of course, in-person meetings are not possible considering the current public health recommendations. It is unclear whether the CRA will reconsider this requirement to include virtual meetings using online video communication platforms, such as Zoom, although discussions are currently taking place.
Further, as it currently stands, the contract of employment must require the employee to maintain a home office, as certified by the employer on form T2200. A sizable strain would be placed on employers if every employee was required to obtain a signed T2200 from their employer to justify a home-office deduction. The Canadian Tax Foundation and CPA Canada approached the government to ask whether a streamlined approach could be used, rather than requiring each employer to issue their own T2200 forms. A decision has not yet been made.
Lastly, the total amount of an employee’s claim cannot be greater than the amount of employment income they earn during the period they work from home. Any excess deductions can be carried forward to be claimed in future years, provided the employee is still working from home and qualifies for deductions in those years.
If you do qualify to write-off home office expenses in the 2020 taxation year, you would be able to deduct a variety of them, including a percentage of the cost of electricity, heating and maintenance. The percentage of the deductible costs must be calculated on a “reasonable basis”, which is usually done by taking the area of your work space and dividing it by the total finished area (including hallways, bathrooms, kitchens, etc.) of your home. If you pay rent for the house or apartment where you have your home office, you can deduct the percentage of the rent you paid in relation to your workspace.
Discussions between CPA Canada and the CRA seem to suggest that the CRA may consider amending the above criteria to better suit the millions of people temporarily working from home as a direct result of the COVID-19 situation.
Reimbursements and Allowances
Some employers have provided their employees with a technology allowance, to be used to pay for expenses such as webcams, headsets or upgrading computer hardware. Other employers may be reimbursing their employees for such purchases, after the employees have bought them. The difference between an allowance and a reimbursement is that with an allowance, there is no dollar-for-dollar exchange between the allowance paid and the costs incurred by the employee.
The CRA stated that under normal circumstances, both allowances and reimbursements paid to employees to facilitate remote work are considered taxable benefits. However, on April 22, 2020, the CRA released a technical interpretation on reimbursements for personal computer equipment to allow employees to work from home during the COVID-19 crisis. The release states that the CRA is prepared to allow a reimbursement of up to $500 towards the cost of personal computer equipment, that is principally for the employer’s benefit and supported by an invoice, so a taxable benefit will not arise.
Questions still remain about the tax treatment of other reimbursements and allowances. These include payments to help cover home office costs, as well as those for expenses incurred for employees who must work outside of their home (e.g. private transportation, meals).
As we await further guidance from the CRA on home-office expenses and other reimbursements and allowances under COVID-19, ensure you keep track of any expenses you have incurred while working from home. This way, you can easily claim them in the 2020 tax season. If your employer has agreed to reimburse you for the cost of personal computing equipment, be sure to keep the related receipts to facilitate a tax-free reimbursement.
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.