COVID-19 has caused many significant changes in how Canadians live their lives. One noteworthy difference for office employees is that many may find themselves working from home for a substantial portion of the year.
This change in routine may give rise to new costs that these employees must bear. Some of the more apparent costs could be computer monitors, desks, or keyboards purchased to facilitate working from home. But there are also additional, more subtle costs, such as higher electricity bills to power those devices from home, you may be paying.
This begs the question...
What home office expenses are Canadians allowed to claim on their tax returns?
Claiming Home Office Expenses – Pre-Pandemic Criteria
Before the pandemic, CRA's position was that an employee could claim certain home office expenses as long as one of the following conditions was met:
- The home office is where the employee works most of the time (more than 50% of total annual working hours), or;
- The home office is used exclusively for work purposes. You must also use it regularly and continuously for meeting clients, customers, etc.
In the current environment, either condition could be difficult to achieve. The first condition is cumulative over the calendar year, meaning time spent in the office prior to offices being shutdown would count against the 50% threshold. The second condition is similarly challenging to achieve as CRA takes the position that "regularly and continuously" meeting clients can only pertain to in-person meetings; Skype or Zoom meetings did not count.
If you did meet one of the two conditions, you would also need a Form T2200 signed by your employer, stating that you were required to use a portion of your home for work purposes.
If all of these criteria were met, you would be able to claim a portion of your electricity, heating, maintenance, and rent. If you received income from commissions, you could also claim property tax and home insurance bills.
The claimable portion would be a "reasonable percentage" of the cumulative total of these costs. For example, a reasonable portion could be the home office's square footage divided by the total square footage of the home. The exception to this is maintenance expenses; expenses that do not impact the home office could not be deducted, but maintenance costs exclusively for the home office may be deducted in full. For example, if you renovate the backyard and the backyard is not used in any way for work purposes, then the costs of the renovation would not be included when calculating tax-deductible maintenance costs.
CRA's Current Position on Claiming Home Office Expenses during the Current Pandemic
The pandemic has vastly changed how Canadians work and interact with each other. Consequently, CRA is examining the pre-existing criteria for claiming home office expenses and considering how the criteria might change, given the current environment. On September 11th, the CRA, alongside the Canadian Chamber of Commerce, solicited feedback on both these criteria as well as on Form T2200.
Preliminary outcomes seem positive. CRA has indicated that home office expenses should be available as a tax deduction to those who are, or were, required to work from home during the pandemic. CRA also stated that Form T2200 is too complicated and requires simplification, even if only for the unique situation that is 2020.
The CRA has since released a draft of a new, shorter version of form T2200.
The short version of the form suggests that an employee who is required to work from home for a significant period of time in 2020 due to the pandemic may deduct home office expenses incurred during that period.
The CRA considers a significant period of time to be a continuous period of four or more weeks. In other words, the employee must be required to work from home for at least four weeks and must work from home more than 50% of the time during those four or more weeks. CRA has indicated that they are taking the feedback received during the consultation into consideration and making further announcements soon about how to claim home office expenses for 2020.
What if my employer provides a reimbursement or allowance for home office expenses?
A reimbursement is where an employee receives repayment from their employer for the expenses they incurred. Typically, as long as the reimbursement is not for items principally used for personal (i.e., non-business related) purposes, there is no tax consequence. Comparatively, an allowance is where an employer provides a given amount of funds to an employee to use at their discretion; an allowance is typically considered a taxable benefit to an employee.
Reimbursed expenses cannot be claimed as home office expenses; typically, purchases made using an allowance can be deducted.
When the employer provides computer equipment to the employee, it is not considered a taxable benefit unless the employee is permitted to keep the equipment after a home office is no longer required.
CRA has announced that during the current pandemic, they will consider expense reimbursements of up to $500 for home office equipment to be non-taxable provided the employee can provide receipts.
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