Work-from-Home Write-Offs in Canada

As we all are aware a lot of things changed in 2020 due to Covid-19 for everyone’s work-life with laptops and file folders permanently residing on unused dining tables, Zoom becoming the standard for connection, and lots of creative ways to combine dress shirts with sweatpants, pajama pants and everything in between. Also, with this new way of working came a host of questions regarding those mysterious tax write-offs which are now available to many more people who have joined club WFH.

So that leaves me here, back behind the keyboard to share some insights and provide some guidance whether you are an employee looking to claim a deduction or an employer trying to understand what form you are being asked to provide.

In pre-Covid times and in post-Covid times there will always be individuals who are required to work from home, not due to the pandemic but as a condition of their contracts such as sales reps who cover large territories or accountants who pick up and move across the country… you get the gist. In these cases, these individuals have likely been claiming a portion of their home that was dedicated to working already – or for those of you who permanently joined the club, will be learning how to do this for this tax season. This lucky bunch requires a T2200 signed by their employer (more on this later) and has no choice but to prepare a more detailed claim to access a tax deduction.

In 2020 as we all know working from home became a reality for many more people who were lucky enough to be in a position to continue to work but with a much shorter commute. Because of this shift in how and where we work CRA has agreed the “requirement” now applies to a lot more people so they have created two new ways to claim a tax deduction.

Finally, what you all came here to find out!

In terms of preparing to claim home office expenses, individuals now have access to three methods:

1. T2200

This method is still available for those who meet the criteria to claim home office expenses as a requirement of their employment. For most people who are working at home because of temporary changes to their work conditions as a result of Covid-19 precautions, this will not apply.

Eligibility:

• Working from home is a requirement of your employment (in your contract of employment)
• You incur these expenses directly in the course of your work duties and your employer has not reimbursed and will not reimburse you
• ONE of the following applies:
• The workspace is where you mainly work (more than 50% of the time)
•  You use the workspace only to earn employment income, and you use it on a regular and      continuous basis for meeting clients, customers, or other people in the course of your employment duties

Eligible expenses:

• Utilities (including internet access)
• Supplies and maintenance
• Rent
• Phone (basic plan + long distance for work-related calls)
• Home insurance (commissioned employees only)
• Property tax (commissioned employees only)

When preparing your claim on form 777 you indicate total expenses for eligible expenses (above) then this total is prorated by the percentage of square footage your dedicated office space takes compared to the total living space for the claim amount. You must be prepared to support your claim with receipts or bills that add to the total expense amount claimed should CRA request them.

You will also need a signed T2200 form which can be requested from your employer and must also indicate if you receive an allowance to cover a portion of your costs. This same form is used for claiming business use of a vehicle or other employment-related expenses you are required to incur but we won’t get into that here.

2) Detailed: T2200(S) – NEW!

The “S” is for short but this mainly refers to the form signed by employers. The method is still detailed and not “S” for simple. 

This method is an option available to individuals who are working from home due to Covid-19 and has a maximum claim amount of $500. It follows many of the same principles as the T2200 to form is just much simpler for employers to fill out and has less strict eligibility requirements for their employees.

Eligibility:

• You worked from home in 2020 due to Covid-19, either elected to do so when given an option or where required to do so
• You incur these expenses directly in the course of your work duties and your employer has not reimbursed and will not reimburse you
• ONE of the following applies:
• The workspace is where you mainly work (more than 50% of the time)*
•  You use the workspace only to earn employment income, and you use it on a regular and   continuous basis for meeting clients, customers, or other people in the course of your employment duties

Eligible expenses:

• Utilities (including internet access)
• Supplies and maintenance
• Rent
• Phone (basic plan + long distance for work-related calls)

To report your claim you would use form 777S, you would report eligible expenses only for the period of time that you were required to occupy a space in your home for work. You then prorate this based on either having a dedicated space (% square footage) or if you used a shared space (% square footage x % hours for work) and there is a limit to the total claim amount of $500. This claim is similar to the normal T2200 in that you must retain all supporting documents should CRA request them. 

3) Simple: Temporary Flat Rate – NEW!

Also known as the “$400 Work-From-Home CRA Tax Break” we have all seen grabbing headlines. This is the simplest of all the methods available and does not require documentation to support the expenses claimed. 

Eligibility:

• You worked from home in 2020 due to Covid-19, either elected to do so when given an option or where required to do so
• Worked from home for more than 50% of your working time for at least four consecutive weeks
• Not all expenses were reimbursed by your employer*

*if your employer covered some costs such as office supplies, furniture (desk, chair), and/ or equipment (laptop, printer, monitor, etc) you still qualify

For this method, you still use form 777S but just elect to use the flat rate method. There are no eligible expenses to track, you are simply able to claim $2 per day that you worked from home. This excludes sick days and vacation days. You do not need to have any signed documentation from your employer. 

Which one is right for me?

Well, this depends on many factors and you cannot know that exact answer without a little math. To know for sure you would need to calculate the deduction available under both methods and compare. CRA has some very detailed explanations and calculators to help: CLICK HERE

Some general thoughts, guidelines, and precautions:

• There were exactly 201 working days in Canada from March 16th, 2020 to December 31st, 2020  if you work a typical 5 day week when you take away public holidays and weekends 
• Be prepared to support how many days you were working from home 
• If you own your home and do not pay rent, your mortgage is not deductible in the detailed method
• If you used a shared or common space in the home (like your dining table) you must also prorate by the total hours used for work which can have a big impact on what you can claim using the detailed method 
• 40 hours out of 168 hours in a week is 23% so you may only claim 23% of the prorated cost 
• This rule applies to a dedicated workspace within a larger room (i.e. desk in your bedroom or living room)

And finally…

Remember this is for a tax deduction, meaning a reduction in your taxable income, not a tax credit that directly reduces your income taxes payable so the impact on your return may not be as dramatic as it initially sounds.

Final Words

This article includes a general summary of tax rules. Need specific tax advice? Hire a Professional Accountant and get the best working for you. 

Filing Taxes concisely deals with several complex issues; it is recommended that accounting, legal or other appropriate professional advice should be sought before acting upon any of the information contained therein.

Our experienced and professional team at Filing Taxes is here to set you on the right path considering your personal business situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.