Months into COVID lockdown with no near end in sight, employers continue to encourage employees to work from home and seek opportunities to offer financial relief to their employees.
As we reported in our May 2020 update, among the conditions to be eligible to claim home office expenses under the Income Tax Act, the home office must be where the employee "principally" (more than 50 per cent of the time) performs his or her duties of employment. Historically, the CRA has taken the position that the determination time for the "principally" test is to be determined over the course of the full period of employment in the calendar year, rather than for just the part of the year during which the employee may be (as in the case of COVID) required to work from home for that employment. This would imply that for a calendar year of employment in which the person works either fully from home or not at all from home for any given month, the employee would have to work from home for a total of at least 6 months in order to meet the test.
BLG recognized early on that there is uncertainty surrounding the interpretation of "principally" created by the COVID pandemic and submitted a request to the Income Tax Rulings Directorate at the CRA to confirm that a broader interpretation should be applied, notably the relevant determination time should be for a given period in time in which the employee is required to work from home due to the COVID pandemic. Since making the submission, BLG has had discussions with the CRA and the CRA verbally confirmed that it would respond to the request. Preliminary responses indicated that a favourable response from the CRA, supported by Finance, should be expected.
Revenu Québec has recognized this interpretation and is allowing employees to deduct eligible home office expenses as long as the 50 per cent threshold is met for just some part of the year (BLG expects that many employees will meet this requirement at some point during the COVID pandemic).
Takeaway
Given the extenuating circumstances and our communications with the CRA, we expect the CRA to issue an interpretation consistent with Revenu Québec and broaden its historical interpretation of the "principally" requirement. BLG continues to follow up with the Income Tax Rulings Directorate at the CRA and has already begun to provide advice on ways to reduce the administrative burden for the employer requirement to issue a T2200 to facilitate the claiming of this benefit by employees for the 2020 taxation year. For any further questions or inquiries, do not hesitate to contact BLG's Tax Team.
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