Working From Home - The New Norm?
18 Jan 2021
Kristine DelRosario - Tax Associate
Although the work from home culture was not unusual prior to the current pandemic, it wasn't until the peak of the COVID-19 outbreak that it surged.
Since March of 2020, many businesses were left with empty office spaces as a lot of employers were forced to make work-from-home arrangements for their employees. Now that employees are using space from their own homes to work, what does this mean for them? Are there any expenses that they can deduct against their income? What documentation is needed for one to claim these expenses?
While work-from-home expenses can also be claimed by self-employed individuals, this article will mainly focus on eligibility requirements for employees. Generally, an employee can claim certain home office expenses on their personal income tax return in order to reduce their personal income tax liability. The claim is limited to the amount of employment/commission income earned in the year.
Some expenses that can be claimed by an employee include utilities, maintenance and minor repair costs, and rent with respect to the size of the workspace. Employees who earn commission income can also claim home insurance, property taxes, and lease payments for office equipment.
In December 2020, the Canada Revenue Agency (CRA) released further details on the eligibility requirements for claiming home office expenses due to COVID-19, by making the claim more accessible and easier to claim. Employees now have two options for claiming home office expenses as follows.
Option 1: Temporary Flat Rate Method
This is a temporary method to simplify the process for both employees and employers. In order to be eligible, all of the following conditions should be met.
- Employees should have worked from home more than 50% of the time over a period of at least 4 consecutive weeks in 2020 due to COVID-19.
- Employees are not claiming other employment expenses such as telephone or office supplies, and are only claiming home office expenses.
- Employer did not reimburse the employee for all the home office expenses.
Under this flat rate method, completion of Declaration of Conditions of Employment (Form T2200) or the new simplified Form T2200S is not required and detailed tracking of home office expenses is not necessary.
In order to claim this expense, employees have to calculate and report on their personal income tax return the total number of days worked from home and multiply this by $2. It is important to note that the number of days worked does not include any statutory holidays, sick days, and vacation days taken during the period. The maximum claim for the 2020 taxation year under this method is $400.
Option 2: Detailed Method
As actual home office expenses pro-rated based on the actual size of the work space may exceed the $400 maximum under the flat rate method, employees still have the option to use the normal detailed method where the total amount of eligible expenses is used to determine the claim.
Under this option, all of the following conditions should be met in order to be eligible:
- The following applies:
- Employee worked from home in 2020 due to COVID-19 pandemic
- Employee was required by the employer to work from home
- Employee was required to pay for expenses related to the work space in their home
- One of the following applies:
- The work space is where the employee mainly (more than 50% of the time) worked for a period of at least 4 consecutive weeks
- The work space is only used to earn employment income and should also be used by the employee to regularly and continually meet clients, customers or other people while performing their work.
- The expenses to be claimed are used directly for work
- Employee has a completed and signed Form T2200S or T2200 from their employer.
Under this method, employees are required to keep any documents such as receipts and invoices in order to support their claim. Although Form T2200S/T2200 is not required to be submitted when filing the personal income tax return, it must be kept on hand by the employee as it may be requested by the CRA when reviewing a claim.
Overall, either method will help individual taxpayers minimize their taxes for the 2020 taxation year during these trying times. However, a proper determination of eligibility and the calculation will be required prior to making a claim. As such, the information provided above is for guidance purposes only and each individual situation will differ based on their specific facts and circumstances. Thus, seeking advice and assistance from an experienced professional is recommended.
Please contact SBLR for any questions regarding this matter.