With many employees working from home during the pandemic, many Canadians are hoping to obtain a tax deduction for the additional costs associated with working remotely from a home office. Unfortunately, the current tax rules allowing employees to deduct home office expenses are quite limited, and unless further legislative changes are made, many will be disappointed.
The Income Tax Act limits the circumstances under which an employee may deduct expenses against their employment income. When it comes to home office expenses, an employee is entitled to deduct utilities (heating, electricity, water), maintenance, the costs of supplies and rent.
Employees who are homeowners, however, are not entitled to deduct mortgage interest, property taxes, insurance or depreciation. There is an exception for employees who earn commission income, who are entitled to deduct home insurance and property taxes (but not mortgage interest). The deductible home office expenses must be proportional to the space used in the home for work purposes.
Once an employee determines their eligible expenses, there are further criteria and restrictions to consider. First, the employee is expected to pay out of pocket for these costs (without reimbursement). This must be validated by the employer, which must provide the employee with a completed Form T2200 Declaration of Conditions of Employment.
Second, the employee would need to meet either of the following two conditions:
- the workspace is where the employee mainly (more than 50% of the time) does their work; or
- the employee uses the workspace exclusively to earn employment income, and it is used on a regular and continuous basis for meeting clients, customers or other people in the course of the employment duties.
The current pandemic has caused some concern in terms of how employees would meet either one of these conditions. First, it is not clear how an employee would meet the “more than 50% of the time” condition. For example, is this evaluated over an annual timeframe, or would a three-month timeframe be enough? With the pandemic leading to stay-at-home orders, many employees could easily meet this condition if measured over a few months. However, uncertainty arises if the condition is measured over a longer timeframe.
Second, would online virtual meetings and conference calls with clients and customers meet condition 2? In a technical interpretation from 2013, the Canada Revenue Agency indicated that “meeting” customers generally refers to face-to-face meetings, and not meetings by phone or video conference. Therefore, it appears that meeting clients and conducting business virtually would not meet the second condition.
Given the current pandemic, social distancing requirements and the need to be working from home, I suspect it is only a matter of time before these views will be challenged or reassessed. Advise clients who are employees looking to deduct home-office expenses that they should speak to their employers about completing Form T2200 before making any deductions.
Clients should also speak to a qualified tax advisor about their specific work circumstances, particularly during the pandemic.