Even with the turbulence of the past year, you can count on one thing always being there. Taxes. This tax season you may be wondering how things will be different due to the COVID-19 pandemic, especially if you ended up working from home.
We have your answers! Read on to see what to expect for this year’s tax season.
2020 Income Tax: What you can’t – and can – claim for your work-from-home office during the COVID-19 pandemic
If you’ve been working from home and spent some money last year on updating your home office (or on so many bottles of sanitizer and masks), you may be wondering how much of it you can write off this year.
If you’re self employed
No changes have been announced. If you’re self-employed, continue with your regular tax processes until you hear otherwise from the Canada Revenue Agency (CRA).
If you’re a salaried employee with a T2200
If you’re a salaried employee, you’ve probably heard about the T2200. It’s the form your employer fills out that tells the CRA what aspects of your job are mandatory and for which you have incurred expenses when you work from home. A common example would be a salesperson who travels a lot with their own personal vehicle. If you’re not sure if you qualify for a T2200, ask your employer and/or your HR department.
COVID-related claims for your home office
Here are some common expenses you may have incurred this year, we’ll let you know what you may be able to deduct – whether you have a T2200 or not.
Masks: Sorry, no. Unless you’re working in a field that requires a mask, it’s not deductible. Check if your T2200 permits it, but in most cases the answer is no.
Home Office Furniture: No. Office chairs, a new desk or a new monitor for your computer are considered capital expenses that cannot be automatically deducted by employees.
However, according to the Government of Canada, you can deduct the cost of supplies if you meet all of the following criteria:
- Under your contract of employment, you had to provide and pay for the supplies
- You used the supplies directly in your work
- Your employer has not repaid and will not repay you for these expenses
- You keep with your records a copy of the T2200 form, Declaration of Conditions of Employment, which has been completed and signed by your employer
**the CRA has introduced a simplified process for claiming home office expenses. For more information, see below.
Workspace expenses: It depends. These expenses include rent, home insurance (but only if you work on commission; salaried employees cannot deduct insurance), electricity/hydro, cleaning materials, etc. that you pay for as part of maintaining your home. To deduct a portion, the property needs to be the place where you principally work or is used solely to earn income from your employment.
Property taxes: No, unless you work on commission. If you do, you can deduct a reasonable amount from the total costs with your T2200.
Internet: Yes. The CRA has expanded the list of eligible expenses to include home internet. Click to see a comprehensive list.
Phones: The Government of Canada says you could deduct a portion of your basic cell phone service plan with a T2200, if certain conditions are met:
- The plan must be reasonable
- You can “substantiate the cellular minutes or data consumed directly in the performance of your employment duties (as well as the cost of minutes or data)”. You will be asked for documentation.
- The plan’s cost has been divided between personal and employment use on a reasonable basis
The Government of Canada simplified process for claiming home office expenses
In response to the millions of Canadians unexpectedly setting up their work spaces at home due to the COVID-19 pandemic, the CRA has made the home office expenses available to more Canadians, and simplified the way employees can claim these expenses on their personal income tax return for the 2020 tax year.
Employees who worked from home more than 50% of the time over a period of at least four consecutive weeks in 2020 due to COVID-19 will now be eligible to claim the home office expenses deduction for 2020.
A new temporary flat rate method will allow eligible employees to claim a deduction of $2 for each day they worked at home in that period, plus any other days they worked from home in 2020 due to COVID-19 up to a maximum of $400.
- Home office expenses can be claimed as a deduction on an employee’s personal income tax return. Deductions reduce the amount of income they pay tax on.
- For those using the detailed method to calculate their home office expenses, the CRA has expanded the list of eligible expenses that can be claimed to include home internet access fees. A comprehensive list of all eligible expenses is available online.
- According to Statistics Canada, “Working from home continues to be an important adaptation to COVID-19 health risks, with 2.4 million Canadians who do not normally work from home doing so in October.”
- The CRA engaged many stakeholders in the fall of 2020 about the simplified Form T2200 and work-space-in-the-home expenses prior to introducing these temporary measures. For more information, go to the Backgrounder – Consultation on the simplification of Form T2200.
- The new temporary flat rate method to calculate the deduction for home office expenses was announced on November 30th in the Fall Economic Statement.
Which method should you use? The detailed method or the temporary flat-rate method.
Under the detailed method, an employee must have worked from home more than 50% of the time for at least four consecutive weeks in 2020, and have completed and signed form T2200S (or T2200) from their employer.
If an employee chooses the detailed method, they’re able to deduct a variety of expenses, such as the cost of rent, electricity, heating, home internet and water, as well as maintenance and minor repair costs. Commissioned employees can also deduct home insurance, property taxes and leasing costs associated with a cell phone, computer, laptop, tablet, fax machine, etc., if those costs reasonably relate to earning commission income. Of note, however: employees using the detailed method cannot deduct mortgage interest, capital expenses or depreciation (capital cost allowance), meaning they can’t deduct that new ergonomic chair, widescreen monitor or headset.
Where there’s a mixed personal and work element to an expense, the employee can only claim the portion of the expense that can be reasonably allocated to employment use. For utilities, rent and other expenses, the employee needs to allocate the expenses on a “reasonable basis,” which is typically done by taking the area of the work space, divided by the total finished area (including hallways, bathrooms, kitchens, etc.) of the home. If the workspace is also used for other purposes, such as a dining room table that is also used for meals, then the expenses must be further prorated for the time spent working.
Temporary flat-rate method
Alternatively, the new flat-rate method may be beneficial if the employee worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to Covid. Under this method, the employee simply claims $2 for each day they worked from home, up to a maximum of $400 (i.e. $2/day for up to 200 working days) per individual.
If more than one family member worked from home in 2020, each individual working from home can use the temporary flat-rate method to calculate their deduction for home office expenses and make a separate claim for up to $400.
The benefits of using the flat-rate method are that the employee does not have to track and keep any supporting documents for their expenses, nor do they have to allocate any expense between employment and personal use. Employees don’t need a signed T2200 or T2200S form from their employer, but they do need to include form T777S Statement of Employment Expenses for Working at Home Due to Covid-19 with their tax returns. An equivalent form must be used for Quebec tax purposes.
Which method to choose?
At first glance, $2 per day may seem like a pretty small amount to claim as a home office expense, but for employees who own their home rather than rent, it’s likely the best option.
To illustrate, Adam is a homeowner who has been working from home since March 16, 2020. He works at his kitchen table, which accounts for 20% of the total square footage of his house. Since his kitchen is not used only for work, he must consider the amount of time he uses his kitchen to do his job. As he works 42 hours per week out of a total 168 hours, or 25% of the time, his percentage of the home that is considered to be used as a work space is 5% (i.e., 25% x 20%). If he paid $500 monthly for utilities (home internet, electricity, heat and water) for 9.5 months in 2020, his employment portion would be $238 (i.e., $500 x 9.5 x 5%). Adam would be better off claiming $2/day for (around) 200 days, or $400, with no need to track receipts or obtain a signed T2200 from his employer.
If you would like to discuss this topic in greater detail or have any questions, please reach out to a member of your Arbutus Financial Team.
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