April 30 is fast approaching, and employers are facing an unprecedented number of questions from employees regarding claiming home office expenses. With the transition to working from home due to the COVID-19 pandemic, many employees are wondering if they are eligible to claim home office expenses on their 2020 income tax returns.
The Canada Revenue Agency (the CRA) recently announced a temporary simplified method that will allow employees who worked from home more than 50 per cent of the time for at least four consecutive weeks due to COVID-19, to claim $2 per working day, up to a maximum deduction of $400 (the Simplified Method).
The Simplified Method does not require employees to obtain any forms from their employer nor maintain documented receipts to validate their claim.
For those employees who were given the choice, but not required, to work from home and chose to do so, the CRA considers them to have worked from home due to COVID-19 and, as such, are eligible for the Simplified Method.
For those employees working in Québec, Revenue Québec (RQ) also announced its intention to harmonize with the CRA and offer a simplified claim of $2 per working day, up to a maximum of $400.
The objective of the Simplified Method is to streamline the reporting process for employees and alleviate any document retention concerns with respect to expenses being claimed. Given that this is likely the first time that employees can claim home office expenses, the CRA and RQ wanted to simplify the process and alleviate all receipt and documentation requirements in order to allow employees to claim certain deductions.
For most employees, it is likely that this Simplified Method will provide the maximum deduction allowed without the detailed record keeping normally required for home office deduction claims.
Each qualifying employee will be able to claim the deduction amount on line 22900, "Other Employment Expenses," of their 2020 tax return. This deduction will reduce their taxable income for the year, and will generally result in an income tax refund. However, the amount of the refund, if any, may differ based on the individual employee's situation and their applicable income tax rates. Similar reporting exists for Québec.
In certain circumstances, employees may be eligible to obtain deductions greater than the maximum of $400 that the Simplified Method offers. This would require employees to:
- Measure the size of their workspace;
- Obtain the total size of all finished areas in their home (including their workspace);
- If using a common space in the home to work, determine average weekly working hours; and
- Determine what their eligible expenses are, and collect and maintain supporting documents for all the expenses they can claim for the period(s) they worked from home.
To make a detailed claim, employees will require a confirmation of employment form. Upon request, the employer may issue such a form, known as a T2200S form (and the Québec equivalent, where applicable), to validate the employee's conditions of employment and enable them to make a detailed expense claim for their work-from-home space.
It should be noted that the incrementally greater amount employees may be able to claim using a T2200/T2200S may not be equal to their investment of time and effort. Furthermore, should employees decide to claim a greater amount of expenses through the T2200S form, they must be aware that they could be audited by the CRA and/or RQ.
It should also be noted that this form only validates the condition of employment requiring employees to work from home due to the COVID-19 pandemic. It does not provide the value of their eligible deductions, as that is a personal income tax matter. Employees will need to be able to calculate the amount of eligible deductions and also determine which of the expenses incurred are deductible and which are not. In this regard, we refer employees to Schedule A "Common Expenses and Eligibility," on the T2200/T2200S form.
In the event of a CRA (or RQ) audit, employees must be prepared to present valid proof (e.g., receipts, floorplans, rental contracts, etc.) in support of any deductions they have claimed. The CRA also occasionally performs in-person inspections of home office claims looking at, among other things, proof that the space is being used solely or jointly for working purposes.
When employers are asked to provide a T2200S form, we invite them to refer employees to the tools the CRA has created to assist in estimating a detailed work-from-home expense claim.
As an example, employees cannot claim the following expenses:
- Capital cost allowance mortgage interest, principal mortgage payments, capital expenses (replacing windows, flooring, furnace, etc.);
- Office equipment (printer, fax machine, briefcase, laptop case or bag, calculator, etc.);
- Monthly basic rate for a landline telephone, cell phone connection or license fees;
- Purchase of a cell phone, computer, laptop, tablet, fax machine, etc., computer accessories (monitor, mouse, keyboard, headset, microphone, speakers, webcam, router, etc.) or other electronics (television, smart speaker, voice assistant, etc.); or
- Furniture (desk, chair, etc.).
However, they may claim an apportionment of their maintenance costs, electricity, heat, water and home internet access fees paid, along with other home expenses included in the work space. Supplies such as postage, stationary, ink cartridges, and other office supplies only for employment purposes can also be claimed as well as other expenses, including work-related cell phone use and long distance calls.
By entering their details in the CRA-provided calculator, employees will be in a better position to determine if the detailed claim method is actually beneficial. It is likely that the Simplified Method will either result in a greater deduction, or they will discover that the additional burden of obtaining a T2200S form and calculating eligible expenses may not be worth the time and effort.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.