For employees working from home during Covid-19, the Canada Revenue Agency (CRA) has expanded eligibility and simplified the requirements to claim home office expenses.
Home office expenses include “work-space-in-the-home expenses” such as utilities and home maintenance as well as certain office supplies and phone expenses (see the table below). Both salaried and commission employees1 working from home due to Covid-19 may be eligible to claim these expenses as deductions on their 2020 T1 income tax and benefit returns.
Employees must have worked from home in 2020 due to Covid-19 for more than 50% of the time for at least four consecutive weeks.
The CRA’s new, temporary flat-rate method allows a deduction of $2 per day to a maximum of $400 for eligible employees. The employee may not claim any other type of employment expenses, such as parking and gas, but they can be partially reimbursed for some home office expenses and still claim the $2-per-day deduction.
Employees choosing to deduct home office expenses using the CRA’s new flat-rate method aren’t required to maintain receipts or other supporting documents, or to determine the size of their workspaces.
Employment contracts don’t need to reference the requirement to work from home, and the employer doesn’t need to complete CRA Form T2200S. The employee simply completes option 1 of the new Form T777S and claims the deduction, calculated on line 9939 of the form, on line 22900 of their 2020 T1 and attaches the form to their 2020 T1.
Under this method, days worked from home include full-time, part-time or overtime hours but don’t include vacation days, sick days, days on leave or statutory holidays.
The CRA’s detailed method is available for those who wish to claim the actual amount of home office expenses they paid and/or want to claim other types of employment expenses (see the list of eligible expenses in the table). This method will be of particular interest to employees who rent their homes (the portion of rent related to the home office is deductible, but no portion of a mortgage payment is deductible).
To use the detailed method, employer requirements to work from home in 2020 don’t have to be part of employment contracts and may be via written or even verbal agreements. Employees can claim expenses for which they weren’t reimbursed and didn’t receive an allowance.
For example, where an employer reimbursed internet costs, the employee may still make a claim for the work-in-home portion of rent and utilities.
Where an employee worked from home in 2020 due to Covid-19 and was required to pay only home office expenses, the detailed method requires that the employer complete, sign and provide the employee with a simplified Form T2200S.
Where the employee was also required to pay for other employment expenses, the employer must provide the employee with a completed and signed Form T2200.
Forms T2200/2200S don’t need to be submitted to the CRA but must be kept on file. Employees must keep receipts, determine the size of their workspace and complete simplified Form T777S (option 2) and attach it to their 2020 T1. Employees claiming other employment expenses must complete Form T777 and attach it to their 2020 T1.
The new rules don’t impact self-employed individuals claiming business-use-of-home expenses using Form 2125.
Table: Detailed method for home office expenses
|Eligible expenses||Non-eligible expenses|
Employees who earn commission incomes can also claim:
Note that neither salaried nor commission employees can use home office expense claims to create or increase loss from employment
For 2020 the CRA has also said it won’t consider it a taxable benefit if an employer reimburses an employee up to $500 for things like computer equipment and office furniture. The same goes for certain parking and travel expenses related to increased commuting costs that employees incurred due to Covid-19.
Advisors should speak to tax experts to confirm the optimal approach for clients claiming home office expenses and access to non-taxable benefits for 2020.
Rebecca Hett, CPA, CGA, TEP, is vice-president, Tax, Retirement and Estate Planning at CI Investments.
1 Commission employees typically have income amounts in box 42 of their T4 slips.