The who, what and how of claiming expenses amid pandemic-related changes
The COVID-19 pandemic has forced many employees to transition into working from home. Naturally, you may have wondered whether the expenses you incurred as part of your employment duties at home would be eligible for tax deductions.
The Canada Revenue Agency (CRA) has issued guidance on this area for the 2020, 2021, and 2022 tax years. To help you navigate these changes, we have outlined the new guidance below. If you are an employee who works from home, consider whether these details are applicable to your income tax returns with the assistance of a professional tax advisor.
New claiming methods
The CRA provides two methods in which employees can claim eligible home-office expenses during 2020, 2021, or 2022.
1. Temporary flat-rate method
This method allows an eligible employee to claim $2 for each day worked from home (either full- or part-time), with a maximum claim of $400 (i.e., 200 workdays) in 2020 and a maximum claim of $500 (i.e., 250 workdays) in 2021 and 2022. It is important to highlight that workdays do not include days off, vacation days, sick leave days, or other leaves of absence. This method is simple as it does not require you to keep documents supporting your paid expenses, nor does it require the employer to sign any CRA declarations. Each employed individual within a household can claim their own amount under the temporary flat-rate method. You may still claim a deduction under the temporary flat rate method if some (but not all) of your expenses have been reimbursed by your employer.
2. Detailed method
This method allows an eligible employee to claim the actual amount of home-office expenses paid that are attributable to their employment, provided that the employment use of the work space is calculated, documents are available to support the expenses paid, and a signed CRA declaration from the employer is completed. Ordinarily, the employer would complete and sign Form T2200, “Declaration of Conditions of Employment.” However, for 2020-2022 the CRA has provided employers with a simplified version, titled Form T2200S, “Declaration of Conditions of Employment for Working at Home Due to COVID-19.”
The who: Which employees are eligible?
There are eligibility requirements for an employee to claim under either of the methods:
1. To claim under the temporary flat-rate method, an employee has to meet all of the following conditions:
- Worked from home in 2020, 2021, or 2022 due to the COVID-19 pandemic;
- Worked more than 50% of the time from home for a period of at least four consecutive weeks in the year (2020, 2021, or 2022);
- Chose to claim only home-office expenses and will not claim any other employment expenses; and
- The employer did not reimburse the employee for all of their home-office expenses.
2. To claim under the detailed method, an employee has to meet all of the following conditions:
- Worked from home in 2020, 2021, 2022 due to the COVID-19 pandemic, or was required by the employer to work from home;
- Required to pay for expenses related to the home workspace;
- Mainly (more than 50% of the time) worked in the home workspace for a period of at least four consecutive weeks in the year, or solely used the workspace to earn employment income and used it regularly and continually to meet clients, customers, or other people;
- The expenses are used directly in the employee’s work; and
- There is a completed and signed Form T2200 or T2200S from the employer.
The what: Which home-office expenses are deductible under the detailed method?
For employees claiming home-office expenses under the detailed method, only the employment portion of actual amounts paid are eligible, and only expenses paid in the part of the year they worked from home can be claimed. Expenses that have been or will be reimbursed by the employer cannot be claimed by the employee as a deduction.
To determine the employment portion of a home-office expense, you need to calculate the employment use of your workspace. This calculation takes into account factors such as the size of the workspace and the home, the type of workspace, and the hours per week the space is used for work. To assist employees, the CRA’s website on home-office expenses provides an online calculator that can be used to assist in determining an employee’s claim under the detailed method.
Once the employment portion of the workspace is determined, the CRA website provides a list of common expenses that can be claimed by employees as deductions under the detailed method, limited to such employment portion. Eligible expenses include but are not limited to:
- Utilities (e.g., electricity, heat, water);
- Home internet access fees; and
- Maintenance and rent; and
- Home insurance and property taxes (only for commissioned employees).
Certain office supplies (e.g., stationery items, paper) and certain phone expenses are also eligible for deduction and are not limited to the employment portion of the workspace.
Expenses that cannot be claimed as deductions include but are not limited to:
- Mortgage payments (principal and interest);
- Home internet connection fees; and
- Furniture and other capital expenses (e.g., computer and home office equipment)1.
1 Note that the CRA confirmed that for the period between March 15, 2020 and December 31, 2021, an employer can reimburse up to $500 of computer and home-office equipment for each employee in order to allow them to carry out their work, provided receipts are provided to the employer. A reimbursement up to this amount would not be taxable to the employee.
The how: Which forms can you use & what is the process?
If you claim home-office expenses under either the temporary flat-rate method or the detailed method, you have to complete the CRA’s Form T777S, “Statement of Employment Expenses for Working at Home Due to COVID-19.” If you are a commissioned employee and are claiming additional employment expenses not related to your home office, you have to complete the CRA’s Form T777, “Statement of Employment Expenses” instead. Form T777S or T777 should be attached to the 2020, 2021, or 2022 income tax return.
Which method should you choose?
Employees who are eligible for both the temporary flat-rate method and the detailed method will have to decide which method to claim their home-office expenses. The decision will require an analysis of the amount claimable under each option. Each employee’s circumstances will differ. Employees who wish to claim their home-office expenses under the detailed method should consult with their employers to confirm their policies with respect to obtaining the signed CRA declaration.
While it appears that the detailed method can allow for more deductions, you should consider the amount of time, effort, and record-keeping required to comply with the method, as compared to the simplicity of the temporary flat-rate method. The CRA’s website on home-office expenses provides an online calculator to assist you and your professional tax advisor to evaluate which method to use on your income tax return.
For Québec-based employees
Revenu Québec has announced that it will follow the CRA’s guidance and employees can claim eligible home-office expenses under the temporary fixed-rate method or the detailed method. This guidance will apply for the 2020 and 2020 tax years.
A new simplified Form TP-59.S-V, “Expenses Related to Working Remotely Because of the COVID-19 Pandemic,” is available to employees to claim their expenses under one of the two methods. If you wish to claim expenses under the detailed method, you will also need a completed Form TP-64.3-V, “General Employment Conditions,” from your employer and will need to keep documentation to support your expenses.
Revenu Québec’s website has further information on claiming home-office expenses.
The guidance provided by the CRA and Revenu Québec on home-office expenses provides welcome relief for you and other employees who have worked from home as a result of the COVID-19 pandemic, as well as employers who may be required to prepare declarations. You should review the guidance with your professional tax advisor. Please contact your Advisor for further information.