Welcome back to the blog!
In addition to working with clients on investment and wealth management, I write a blog on tax tips and tidbits and share other articles that I think will be of interest. In this edition, I've written about the rules regarding the deductibility of home office expenses, a topic that is much more pertinent with more Canadians than ever quarantined during a pandemic.
In the spring, a number of Canadians found themselves uprooted from their traditional office work environment and shifted to their home with a convenient bed to desk office commute, navigating a new work from home world amidst a global pandemic.
Now in transitioning to their new office digs, many have made investments in home office supplies or equipment in order to carry out their employment functions, and as a result, are left wondering if some of these expenses might be deductible from income.
So what are the rules?
Okay, to start, I’m going to simplify things and note that the following analysis is relevant for a typical salaried employee as the rules differ slightly for the self-employed or commissioned salesperson.
So, in order to be able to deduct expenses, there are two ways an employee can qualify…
- The home office is where the employee principally (50 percent) performed their duties, or
- The home office space is used exclusively for earning income from employment, and therefore, the kitchen table or bedroom desk will not suffice. Further, the space also needs to be used “on a regular and continuous basis for meeting clients, customers or other people in the course of your employment duties,” according to the CRA.
In addition to meeting one of the above criteria, an employee needs the following:
- A contract of employment that requires work from home, and
- A Form T2200 Declaration of Conditions of Employment completed by the employer. In light of being in a rapidly shifting environment these last number of months, it is unlikely that employment contracts have been tweaked to meet the first condition, however, the CRA offered an administrative concession here and confirmed that this does not need to be in writing.
A couple of commonly asked questions
I only worked from home during part of the year during the pandemic, do I qualify?
It appears from discussions with the CRA that this test can be applied during the pandemic as opposed to during the whole calendar year, so the answer is quite likely a yes.
I only meet with clients at home through virtual meetings, does that count?
Generally, the long-standing CRA position is that client meetings need to happen face to face, and as such, it is unclear as to whether this position will be reconsidered to include the virtual meetings that have been common this year. It is expected that further clarity will be provided, so stay tuned.
I think I'm eligible, what can I deduct?
Eligible expenses typically include things such as a reasonable portion of the rent, water, heating, and electricity bills in addition to supplies. In order to be considered reasonable, the expenses should be allocated in the same proportion the workspace occupies in the home.
No, unfortunately, mortgage interest, property taxes, and items such as sleek office furniture or a fancy new computer do not qualify as the latter are considered capital in nature. The CRA, however, has indicated that reimbursements to employees for computer equipment or home office furniture will not be taxable subject to a $500 limit.
How can I plan ahead for tax time?
It’s not too early to start planning, so if you are an employee newly working from home during the pandemic, consider approaching your HR department to inquire whether they’re considering issuing the T2200 for employees this year, and finally, make sure you keep all of your receipts!
Stay tuned as well for further clarity and guidance as is expected by the CRA.
I can be reached at firstname.lastname@example.org or 604.981.6681.
UPDATE as of December 1st, 2020
In the federal government's Fall Economic Statement presented on November 30th, 2020, a new simplified deduction was announced effectively allowing Canadians to claim up to $400 based on the amount of time working from home without the need to track detailed expenditures or obtain a signed T2200 form from their employer.
The CRA is expected to communicate further details in the coming weeks.
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