Posted on June 3rd, 2020 in Domestic Tax

WORKING FROM HOME DURING COVID-19: Home Office Expenses

Illustration - a house with a person working at a desk inside.

In order for home office expenses to be deductible against employment income, the employee must be required by contract to incur such expenses, and one of the following has to be met:

  1. The home is where the employee principally (more than 50% of the time) does their work.
  2. The employee uses the space exclusively to earn employment income, and it is used on a regular and ongoing basis for meeting clients, customers or other people in the course of performing employment duties.

Given that the COVID-19 pandemic has required many to work from home, many more will likely be eligible under (1) than in previous years. However, at question is whether the workspace must be the main place of work in context of the entire year or just a specific period, such as the several months dictated by preventative COVID-19 measures. While CRA has not yet provided their comment, the tax preparation community has been pushing for guidance in time for next tax filing season.

If qualifying under provision (2), a problematic issue is the requirement for regular and ongoing meetings. CRA has stated that those meetings must be in person; many tax publishers and journalists have noted that position is outdated and should include video and teleconference meetings as well.

What expenses are deductible?

A portion of household costs can be deducted, such as electricity, heating, water, rent, security and maintenance. If, and only if, the individual is a commissioned salesperson, a portion of property tax and insurance can also be deducted. No employee (neither commissioned sales persons nor regular employees) can deduct mortgage interest or capital cost allowance.

When calculating the deductible percentage, a reasonable basis should be used, such as the area of the workspace divided by the total finished area (including hallways, bathrooms, kitchens, etc.). Expenditures that relate solely to the workspace and employment duties do not have to be prorated.

In addition, the employee must:

  • obtain a completed T2200 (Declaration of Conditions of Employment) from the employer;
  • prorate the personal usage based on space (portion of house) and time (portion of the day used for work);
  • prorate expenses that do not relate to the portion of the year when working from home; and
  • limit expenses to the amount of related income earned during the year.

NEW CRA UPDATE (December 15, 2020):

CRA released new rules for employees working from home during COVID-19, items include:

New Temporary Flat Method – $2/day (to a $400 max) for employees who worked at home at least 50% of the time for at least 4 consecutive weeks due to COVID-19.

New Optional Detailed Method – Employee must obtain a simplified T2200S from the employer and claim specific eligible expenses. This new form asks 3 questions and requires the employer to certify “that this employee worked from home in 2020 due to COVID-19, and was required to pay some or all their own home office expenses used directly in their work while carrying out their duties of employment during that period.”

New Eligible Expense Listing – A listing of 59 items with details on what can and cannot be claimed. Internet access counts.

New T777S – Short form to make either the detailed or flat rate claim (filed with the employee’s tax return).

Read more details on these claim methods and forms in RSM Canada’s article entitled: Employee home office expense deduction simplified.

ACTION ITEM: If after reviewing this article, you are still uncertain as to whether your home office expenses are deductible, ensure you retain your receipts and connect with one of our knowledgeable accountants, so that a determination can be made as the filing season approaches.

More articles related to COVID-19: Business Resource Centre

Article originally published in: Tax Tips & Traps 2020 Second Quarter – Issue 130