Methods for claiming home office expenses
For 2020, there are two methods for claiming home office expenses on your personal tax return:
- Temporary flat rate method
- Detailed method
To be eligible for the temporary flat rate method, you must only be claiming home office expenses (such as electricity, home internet access fees, and office supplies like pens and paper) and not any other employment expenses (such as motor vehicle expenses). In addition, you can only use this method if your employer has not reimbursed you for all of your home office expenses.
If you’re in a situation where your employer has reimbursed you for some but not all of these expenses, you can still use this method. Alternately, the detailed method can be used if you’re claiming other employment expenses in addition to home office expenses, or if you have a larger claim and want to deduct the actual expenses you paid for in order to work from home.
The detailed method is more complex, as you will need to separate the expenses that relate to your employment from those that relate to your personal use and keep supporting receipts or documents. Your employer must also complete certain forms in order for you to claim expenses under this method.
The temporary flat rate method
The new temporary flat rate method is a simplified way to claim your home office expenses and can only be used for the 2020 tax year. You are eligible to use this method if you worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. Based on that eligibility, you can claim $2 for each day you worked at home in 2020. The maximum you can claim using this method is $400 (200 working days). If more than one person in your family is working from the same home, each person can make a separate claim.
If you were not required to work from home, but your employer provided you with the choice to do so because of the COVID-19 pandemic and you opted for that choice, the CRA will consider you to have worked from home due to COVID-19.
Qualifying workdays include those you worked either full-time or part-time hours from home. Days off, vacation days, sick leave days and other leaves of absence cannot be counted as workdays.
In using this method, you do not have to calculate the size of your work space or keep supporting documents for your claim. In addition, your employer does not have to complete or sign any forms. You will, however, have to complete “Option 1 – Temporary flat rate method” on Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19 and attach the form to your personal income tax return. For more information on how to make the claim on your personal tax return, please refer to the CRA website.
The detailed method
Determining your eligibility
Under the detailed method, you are eligible to claim a deduction for home office expenses for the period you worked from home, if you meet all of the following criteria:
- You were required to work from home by your employer, or you were given the choice to do so and you opted for that choice, due to the COVID-19 pandemic. Being required to work from home does not have to be part of your employment contract and may be a written or verbal agreement;
- You were required to pay for expenses related to the work space in your home;
- The expenses relate directly to your work during the period; and
- Your work space is where you mainly work (more than 50% of the time) for a period of at least four consecutive weeks. Alternatively, this criteria may be met if you only use your work space to earn employment income and use it regularly and continually for meeting clients, customers or others while doing your work.
Determining your work space expenses
Whether you own or rent your home, the amount you can claim for the work space in your home must be apportioned on some reasonable basis, such as square footage of space used. For example, a reasonable apportionment could be the area of your work space at home divided by the total finished area of your home (including hallways, bathrooms and kitchen). The CRA has provided guidance on how to calculate the size of your work space. Please see the CRA website for more information.
As an example, assume you have a designated room in your house, such as an office or a spare room that you use only for work. If that room accounts for 20% of your home’s total square footage, you can deduct 20% of the expenses related to your work space. This percentage also applies to the amount of rent you can deduct if you rent your home.
If you work in a common area, for example at a kitchen table that has other purposes besides your work, then you must calculate your employment use of that space. You can determine your employment use of the space by calculating the number of hours you use the space for work. For example, if you work 32 hours a week at the kitchen table, you can claim 19% (32 hours worked/168 total hours in a week) of the expenses relating to that space.
If you’re the only one working in a particular space in your home, you can claim the whole employment use of that work space. However, if you and another family member share the work space (whether it’s a designated area or a common work space) you will each have to calculate a portion of the employment use of the work space you are sharing.
Deduction limitations
If you worked only part of the year from home, you can only claim the expenses you paid in that part of the year. For example, let’s say you worked from home from March 15 to May 31, 2020, due to the COVID-19 pandemic, but you went back to the office full-time in June. Due to COVID-19, you worked exclusively from home again in November and December. Assuming you meet all of the relevant criteria, you can claim the work space expenses you paid for those periods you worked exclusively from home, but you cannot claim the expenses you paid for the full year.
In addition, keep in mind that it’s possible to deduct the expenses related to your home office only to the extent that they do not exceed your employment income for the year (as determined before deducting those expenses). In other words, you can’t create or increase a loss for tax purposes by deducting home office expenses. Rather, you are able to carry forward any expenses in excess of your employment income and deduct them against your employment income (from the same employer) in a future year, provided you meet the relevant criteria in that year as well.
Expenses you may be able to claim
For a comprehensive list of expenses you can claim, please visit the CRA website.
Calculating your expenses
Under the detailed method, the calculation of home office expenses is quite complex. The CRA has created a calculator to help you determine the home office expenses deduction that you’re entitled to.
Required forms
In order to claim a deduction for home office expenses, you’re generally required to have a completed and signed CRA Form T2200 – Declaration of Conditions of Employment, from your employer. By signing the form, your employer is certifying that you are required to pay for your own expenses while carrying out your employment duties and that those expenses are not reimbursed by your employer.
To ease the administrative burden on employers for 2020, the CRA created a simplified Form T2200S – Declaration of Conditions of Employment for Working at Home Due to COVID-19. The T2200S is a simpler version of Form T2200. Your employer will need to complete this form to certify that you worked from home in 2020 due to the COVID-19 pandemic and were required to pay for some or all of your home office expenses during that period. In order to claim home office expenses under the detailed method in 2020, your employer will need to complete either of these forms.
For 2020, the CRA will accept an electronic signature on the Form T2200S and Form T2200 to reduce the need for employees and employers to meet in person. Although you’re not required to file these forms with your personal income tax return, you should keep a copy of them for at least six years, in addition to any receipts or supporting documents, in case the CRA asks to see them.
In order to make a claim for home office expenses, you will also need to complete Form T777 – Statement of Employment Expenses or Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19. Form T777S is a simpler version of Form T777. For more information on how to make the claim on your personal tax return, please refer to the CRA website.
Allowances and reimbursements
To assist you in working from home, your employer may have provided you with an allowance to cover home office expenses such as personal computer equipment or a headset. Or, perhaps your employer may have chosen to instead reimburse you for certain expenses you had to incur.
Generally, an allowance or reimbursement for items such as personal computer equipment will be considered a taxable benefit, and you will be required to include the amount in your income.
The CRA’s view is that you have received an economic benefit when you are reimbursed, in whole or in part, for purchasing an asset that you get to keep, even if you use the asset for employment purposes. In addition, if you received an allowance to cover a portion of your home office expenses, it will generally be considered a taxable benefit regardless of whether you can deduct home office expenses.
However, the CRA recognizes that, due to COVID-19, many employees have needed to purchase computer equipment as well as home office furniture, such as desks and chairs, in order to work from home. Consequently, the CRA recently confirmed that a reimbursement of up to $500 for the cost of acquiring personal computer equipment and home office furniture that has enabled you to immediately and properly perform your employment duties will not be a taxable benefit, as the items are mainly for the benefit of your employer. You will need to keep receipts in order to provide supporting documentation.
Keep in mind that you cannot claim a deduction for any expenses that were or will be reimbursed by your employer.
Conclusion
As a result of the COVID-19 pandemic, you may have started working from home for the first time in 2020 and therefore may not be familiar with the rules for deducting home office expenses. Given the latest CRA and Revenu Quebec guidance, it’s important to speak with a qualified tax advisor to determine whether you can claim home office expenses and if you can, which method is best for you.
This article may contain strategies, not all of which will apply to your particular financial circumstances. The information in this article is not intended to provide legal, tax or insurance advice. To ensure that your own circumstances have been properly considered and that action is taken based on the latest information available, you should obtain professional advice from a qualified tax, legal and/or insurance advisor before acting on any of the information in this article.