Claiming Home Office Expenses During COVID-19

UPDATE: December 15, 2020 CRA Resources Now Available!

The CRA has provided details including simplified forms (Form T2200S and Form T777S) and a calculator designed specifically to assist with the calculation of eligible home office expenses. Learn more on this link.

UPDATE: November 30, 2020 Federal Government Announcement

On November 30, 2020 the Government announced in its “2020 Fall Economic Statement” that the CRA will allow employees working from home in 2020 due to COVID-19 to claim up to $400 in home office expenses, based on the amount of time working from home, without the need to track detailed expenses. The CRA will “generally” not request employees to provide a signed Form T2200 from their employer. Please note: the article below is based on previous CRA rules and requirements.

– NOTE –
The article below is out of date due to new Government statements. Instead, read the updates above pointing you to links for newly released guidelines in light of COVID-19 and recent CRA announcements.

• Were you required to work from home due to the COVID-19 pandemic?
• Are you an employer who needs to answer questions from employees about tax breaks for working from home?

During the lockdown, many workplaces suddenly went virtual, forcing a large-scale shift to home offices.

As a result, many employees may be able to claim home workspace expenses on their 2020 personal tax returns.

In simple language, this article will answer your questions and point out additional resources.

Rest assured, we will keep this article up to date if the Canada Revenue Agency (CRA) makes a policy change on home office deductions given 2020’s pandemic move to #WFH (Working From Home).

Included:

• Your eligibility for home office and employment expenses based on your employment status and a signed T2200 form from your employer
• What kind of expenses you can claim (based on the T2200)
• The documents and information you need to prepare
• How being “required” to work from home and having the “option” to work from home will impact your eligibility for expenses
• PLUS answers to common questions in our FAQ section

Let’s Get Started!

Select your employment status from the four categories below. Click on the link to find the information that applies to your situation:

Category 1: Employees earning salary only

Category 2: Employees earning salary AND commission income

Category 3: Individuals earning self-employment income

Category 4: Employers looking for guidance on this topic

Category 1: Employees earning salary only

Eligibility Requirements

Your employer requires you to:

• use the home workspace more than 50% of the time. For example, you were required to work from home for more than six months of 2020 while working full-time for 12 months.

OR

• use the home workspace on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties. NOTE: At this time, it is not certain if, as a result of COVID-19 health concerns, video conference meetings or conference calls will qualify as “meetings with clients, customers, or other people in the course of your employment duties”.  The CRA’s traditional stance is that meeting customers must be done in person.

If either of the above applies to you, you must obtain a signed T2200 Declaration of Conditions of Employment from your employer. This declaration describes your employment conditions and eligible expenditures.

Important:

Keep in mind that according to the CRA, flexibility to work from home is not the same as a requirement to work from home. If your employer reopens the office after the lockdown and you have the option to continue to work from home, then those months may not qualify as time you were required to work from home.

The next section shows possible deductions.

Expenses You Can Deduct

Home Office Expenses:

• heat
• electricity
• water
• security
• repairs and maintenance¹ (versus capital expenses which are not deductable – see our definition below)
• rent

Other Employment Expenses As Allowed by Your Employer:

You may be able to deduct additional employment expenses as authorized by your employer or employment contract. Applicable expense categories must be indicated on the signed T2200 Declaration of Conditions of Employment from your employer.

• allowable motor vehicle expenses
• travelling expenses
• parking
• supplies – re phone and internet please refer to our FAQ section
• salary expense for an assistant
• office rent (if claiming in lieu of a home office)

Salaried employees please check out the following link for more information.

Documentation and Information Required:

• Submit your signed T2200 Declaration of Conditions of Employment from your employer to your tax accountant.
• Keep a record of all deductible expenses paid. Provide a home office expense summary to your accountant at tax time. Keep your receipts, invoices, and proof of payment for all deductible expenses paid in case the CRA asks for proof.  Electronic copies are accepted.
• Obtain the total square footage of your home and the square footage of your home office or workspace. Why? You or your tax accountant will need to calculate what percentage of your expenses apply to your home office. To do so, they will probably divide the square footage of your home office by the square footage of your home.

Category 2: Employees earning salary AND commission income

Eligibility Requirements

Your employer requires you to:

• use the home workspace more than 50% of the time. For example, you were required to work from home for more than six months of 2020 while working full-time for 12 months.

OR

• use the home workspace on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties. NOTE: At this time, it is not certain if, as a result of COVID-19 health concerns, video conference meetings or conference calls will qualify as “meetings with clients, customers, or other people in the course of your employment duties”.  The CRA’s traditional stance is that meeting customers must be done in person.

If either of the above applies to you, you must obtain a signed T2200 Declaration of Conditions of Employment from your employer. This declaration describes your employment conditions and eligible expenditures.

Important:

Keep in mind that according to the CRA, flexibility to work from home is not the same as a requirement to work from home. If your employer reopens the office after the lockdown and you have the option to continue to work from home, then those months may not qualify as time you were required to work from home.

The next section shows possible deductions.

Expenses You Can Deduct

Home Office Expenses:

• heat
• electricity
• water
• security
• repairs and maintenance¹ (versus capital expenses which are not deductable – see our definition below)
• rent
• insurance
• property tax

Other Employment Expenses As Allowed by Your Employer:

You may be able to deduct additional employment expenses as authorized by your employer or employment contract. Applicable expense categories must be indicated on the signed T2200 Declaration of Conditions of Employment from your employer.

• allowable motor vehicle expenses
• travelling expenses
• parking
• supplies – re phone and internet please refer to our FAQ section
• salary expense for an assistant
• office rent (if claiming in lieu of a home office)

Commission employees please check out the following link for more information.

Documentation and Information Required:

• Submit your signed T2200 Declaration of Conditions of Employment from your employer to your tax accountant
• Keep a record of all deductible expenses paid. Provide a home office expense summary to your accountant at tax time. Keep your receipts, invoices, and proof of payment for all deductible expenses paid in case the CRA asks for proof.  Electronic copies are accepted.
• Obtain the total square footage of your home and the square footage of your home office or workspace. Why? You or your tax accountant will need to calculate what percentage of your expenses apply to your home office. To do so, they will probably divide the square footage of your home office by the square footage of your home.

Category 3: Individuals earning self-employment income

Eligibility Requirements

Home workspace is your principal place of business.

OR

Your home workspace is used exclusively to earn business income; and on a regular and continuous basis is used for meeting clients, customers, or patients of the individual in respect of the business. NOTE: At this time, it is not certain if, as a result of COVID-19 health concerns, video conference meetings or conference calls will qualify as “meetings with clients, customers, or other people in the course of your employment duties”.  The CRA’s traditional stance is that meeting customers must be done in person.

If either of the above applies to you, please proceed to the next section to see eligible deductions.

Expenses You Can Deduct

Home Office Expenses:

• heat
• electricity
• water
• security
• repairs and maintenance¹ (versus capital expenses which are not deductable – see our definition below)
• rent
• insurance
• property tax
• mortgage interest

NOTE: You may be able to deduct additional business expenses including:

• advertising and promotion
• accounting and legal fees
• travelling expenses
• meals and entertainment
• parking and motor vehicle expenses
• supplies
• telephone, internet and utilities
• business tax, fees, licenses, and professional dues
• office rent

Self-employed individuals should check out this link.

Documentation and Information Required:

• Keep a record of all deductible expenses paid. Provide a home office expense summary to your tax accountant at tax time. Keep your receipts, invoices, and proof of payment for all deductible expenses paid in case the CRA asks for proof.  Electronic copies are accepted.
• Obtain the total square footage of your home and the square footage of your home office or workspace. Why? You or your tax accountant will need to calculate what percentage of your expenses apply to your home office. To do so, they will probably divide the square footage of your home office by the square footage of your home.

Category 4: Employers Looking for Guidance on this Topic

Eligibility Considerations, Rules, Documentation and Information Required

Be clear with your employees about their eligibility to make a claim for home office expenses.

Remember that employees cannot claim home office or employment expenses unless they are required by their employer or employment contract to:

• work from home more than 50% of the time AND/OR
• pay for specified employment expenses

An Important Distinction

Keep in mind that according to the CRA, flexibility to work from home is not the same as a requirement to work from home. If an employer reopens their office after the lockdown and employees have the option to work from home, then those months may not qualify as time the employees were required to work from home.

Calculating the 50% Requirement

Traditionally the 50% qualification has been assessed over a calendar year. Therefore, if your employee was not required to work from home at least 6 months in 2020 they would be ineligible to claim home office expenses.

T2200 Declaration of Conditions of Employment

The employee cannot claim home office expenses unless the employer has completed and signed the T2200 Declaration of Conditions of Employment form. You can find the T2200 form on the link below: https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2200.html

If you reimburse your employee for a specific expense (for example: printer paper), the employee cannot deduct that specific expense as an employment expense.

If you paid an allowance to your employee, the employee will be considered to have received a taxable benefit at the end of year regardless of whether the employee can deduct such an expense.

Please consult your Stern Cohen advisor if you have any questions.

¹Repairs and Maintenance Definition:

In attempting to deduct expenses related to repairs and maintenance, an accountant needs to assess whether an expenditure is a current expense or a capital expense. For a repair this might consider evaluating whether the expenditure returned something to its original condition or improved the item from its original condition. For example, repairing a furnace might be considered a repair while replacing an old furnace with a new furnace would be a capital expense and not deductible.

Your maintenance expenses will normally fall into the following categories:

1. Maintenance or minor repairs that relate to the workspace only. Normally, one can deduct 100% of that amount.
2. Maintenance or minor repairs that relate to the workspace as well as other areas of the home. Proper allocation will need to be performed by your accountant.

Note: Maintenance or minor repairs that do not relate to the workspace are not deductible.

Maxing Out Your Expenses

Home office expenses claimed cannot exceed employment/commission and self-employed income; however, one may be able to carry forward any unused home office expenses to the next taxation year.

Changes May Be Coming to Simplify this Process

The Covid-19 pandemic and subsequent shift to working from home is unprecedented. As a result, CPA Canada has asked the CRA to introduce new policies to make it easier to claim home office expenses in 2020. We will keep you posted and update this article if any changes or simplified approaches are introduced.

FAQ | Common Questions:

Q: While working from home, I use my home internet and cell phone plans. Can I claim my internet or cell phone charges as an employee?

A: Yes, assuming you meet the conditions described earlier in this article to claim home office expenses and have a signed T2200. However, please note the following conditions:

• If you also use the internet and/or cell phone for personal use, you must adjust the amount you’re claiming to remove the personal use portion.
• If you needed to upgrade your internet package because of home office requirements, the difference between the upgraded internet and basic charges would qualify as eligible employment expenses.
• If you needed to make long-distance calls for work using your cell phone, those costs would qualify as eligible employment expenses.
• Remember, you must obtain a signed T2200 for authorized employment expenses and have proof of all costs. For instance, download your monthly cell phone bill and highlight long-distance phone calls related to work.

Q: I used my dining area as my home office. My dining area is approximately 25% of the square footage of my condo. Can I claim 25% of my home office expenses?

A: No. You must adjust the percentage for personal usage. For example, if your dining room is used 60% of the time for work and 40% of the time for personal use, you can claim home office expenses based on 15% (25%*60%).

Q: What information and documents do I need to provide with respect to home office and employment expenses for my 2020 personal tax return?

A: Please read the relevant section above for a detailed description of your eligibility. Then, you will need to provide:

• a T2200 form signed by your employer authorizing the expenses you are claiming;
• a summary of your employment expenses;
• the total square footage of your home and the square footage of your home office. If you do not have a home office at your home and you use the dinning area as home office, please make sure you tell your tax accountant so that they can adjust for the personal portion.

Q: As an employee, I purchased a printer, chair, desk as well as a laptop camera, microphone and ethernet cable for the many Zoom calls needed in the course of my work. These are all for my home office. Can I deduct any of these expenses?

A: Unfortunately, the answer is no. As an employee, you are not allowed to deduct any equipment or capital items as employment expenses. See this link for more information.

However, if you are an employee earning commission income and you lease computers, cell phones, fax machines, or other equipment, you can deduct the part of the lease cost that reasonably relates to earning your commission income. See this link for more information.

Q: What kind of documentation must I provide if the CRA contacts me requesting more information?

A: It depends on the CRA’s request. At minimum, make sure you have the following:

• Signed T2200 form from your employer;
• Invoices/receipts to prove you made the payments for your employment expense(s);
• House/condo floor plan with dimensions and indicating your home office area and percentage of personal use.

Q: For my allowable expenses, does the total cost of allowable expenses come off of my annual income so that that amount is not taxed?  I’m wondering if it’s worth going through the effort of claiming expenses on my tax return.

A: The answer is a conditional yes. Yes, home office expenses claimed will reduce your income that is subject to income tax, but please remember that:

• We’re referring to the allowable portion of your expenses – AFTER you have backed off the percentage/portion for personal use AND as long as you meet the eligibility requirements covered in the article above for your employment category.
• Also, the amount claimed cannot exceed your employment/commission income or self-employment income (as applicable). However, one may be able to carry forward any unused home office expenses to the next taxation year.

Disclaimer: While the information in this article is meant to be helpful, it is not meant to be advice for your unique situation.  If you would like assistance with tax compliance, please contact your Stern Cohen advisor today.