Heading into the final push before the tax deadline, many Canadians are again looking for ways to claim back expenses. Since the COVID-19 pandemic, there has been a rise in Canadians working from home, turning their home spaces into home office spaces. Naturally, many employees may be unsure about claiming home office expenses or working from home tax deductions.
If you are looking for a tax deduction for a home office, we review what you will need to consider.
Home Office Tax Deduction in Canada
To claim back these expenses, you will need to claim a home office tax deduction on your income tax. Pre-COVID-19, eligible employees would use a "detailed method" to deduct work from home expenses through calculations and required signed employer forms (we will discuss this method below). As mentioned, with the increase of employees working from home, many employees will be unfamiliar with working from home tax deductions. In response to this anticipated increase, the Canada Revenue Agency (CRA) presented a new "temporary flat rate" method as an alternative to the traditional method. We will discuss both and the requirements for each below.
Temporary Flat Rate Method
The temporary flat rate method simplifies claiming home office expenses. The flat rate method allows employees to deduct $2 per day, up to a maximum of $400 for days working at home. This deduction includes full-time and part-time workdays but does not include vacation days or sick days. With this method, your employer does not have to complete Form T2200 or T2200S, nor do you have to keep supporting documents for your claim.
Flat Rate Eligibility
The CRA has eligibility criteria for the temporary method. To claim home office expenses under the flat rate method, you must meet all of the criteria:
- You worked from home because of the COVID-19 pandemic; this includes employees who had a choice to work from home.
- You worked more than 50% of the time in your home and for at least four consecutive weeks in 2020.
- You are only claiming home office expenses and not any other employment expenses (on line 22900).
- You were not reimbursed for all of your home office expenses by your employer.
Using the flat rate method, you do not need to calculate workspace size. However, you will need to complete Form T777S and file with your taxes. Each person working from home meeting the eligibility criteria can use the flat rate method to calculate their deduction. As such, multiple people working from the same home can make a claim.
Although the temporary flat rate method is limited to a $400 maximum, it will benefit many people unfamiliar with claiming home office expenses. It will also be helpful for those looking for a simpler approach.
The Detailed Method
Employees claiming actual expenses incurred, have other employee expenses in addition to home expenses, or have usually claimed home office expenses before COVID-19, may want to use the detailed method.
Detailed Method Eligibility
To be eligible, an employee must meet the following criteria:
- In 2020, you worked from home because of COVID-19 (as with the flat rate method, the CRA will accept you worked from home due to COVID-19 even where your employer gave you a choice).
- Your employer required that you work from home.
- You had to pay for your home workspace expenses. (Note: If your employer reimbursed you for a portion of these expenses, you could still apply the detailed method provided you meet the eligibility criteria, however, be aware you cannot claim expenses that your employer reimbursed or will reimburse).
- You work at your home workspace for more than half (50%) of the time for at least four weeks consecutively (the work period can be longer than one month).
- Your workspace can either be a designated room or a shared common area with other uses (e.g., a kitchen table or family room).
- You only use your workspace to earn income and is used regularly and continually to meet clients or other people for work.
- Your expenses are used directly in your work.
- Your employer signs and completes a T2200 (Declaration of Conditions of Employment for Working at Home Due to COVID-19), or your employer signs and completes a T2200S. The T2200S is a condensed version of the T2200 (either way, you must keep a copy of either form in the event the CRA asks for it).
Depending on your situation, you may need to use the T2200 rather than the T2200S. For example, if you have additional out-of-home employee expenses or vehicle expenses, you will need to use the T2200.
Calculations of Eligible Expenses
With the detailed method, you must determine which of your expenses are eligible. You must also calculate the size of your workspace to determine the proration of your home office expenses. The CRA guides how to calculate the portion of your home used as a workspace. There is a simple calculator you can use to perform this calculation.
You will then need to determine what expenses are eligible to claim. Here is a list of eligible expenses for salaried and commissioned employees:
- Electricity
- Heat
- Water
- Utility portion (electricity, heat, and water) of your condominium fees
- home internet access fees
- maintenance and minor repair costs
- Rent paid for a house or apartment where you live
Commissioned employees may also claim:
- Home insurance
- Property taxes
- Leased items like a laptop, cell phone, or tablet provided it reasonably relates to earning commission income.
For a home office renovation tax deduction in Canada, be sure to confirm what expenses you can and cannot claim, particularly if you are doing any work that extends to other parts of the home.
If applying the detailed method, a home office tax deduction calculator can help calculate your home office expense calculations. The detailed approach, while more time-consuming, may benefit you depending on your living and work arrangements and allow you greater deductions if eligible.
Conclusion
COVID-19 created a new group of work-from-home employees. For many Canadians, many never have thought about turning their home into a workspace. To assist with this increase of home office space tax deduction, the CRA created the flat rate method for this tax filing year only. For others, the detailed approach may still be best. It is good practice to consult with a qualified tax expert who can help you determine which method is best for you and you file correctly.