The Simplified Home Office Expense DeductionBrian Jang ON January 14, 2021
One of the major changes wrought by the COVID-19 pandemic was the large number of Canadians who began to work remotely from home. By the end of March 2020, the number of those who had transitioned to working at home had nearly reached 5 million.
Over time, many of those workers made their way back to the workplace, but millions of them are still working out of their homes. If you or someone in your employ are among this number, keep reading to learn what is claimable on your 2020 tax returns. If you were already working from a home office prior to the pandemic, you will continue to calculate your expenses as normal.
Simplified Home Office Expense Deductions for Employees
If you are new to working at home, you may be unaware that Canadians are able to deduct certain expenses related to their home office when completing their tax returns. For those who spend more than 50% of their work hours at home, deductions can be made related to their workplace, including maintenance, electricity, and work supplies.
The current regulations allow the employee to calculate the size of the workspace as a percentage of the whole house and then deduct that percentage of the rent and housing expenses. Use of the home office must be specified as part of a contract between employer and employee, and the employer must also complete and sign the T2200: Declaration of Conditions of Employment form to be submitted with the return.
Following the outbreak of COVID and the adoption of remote working by so many Canadians, Deputy Prime Minister and Minister of Finance Chrystia Freeland revealed on November 30th a statement “Supporting Canadians and Fighting COVID-19” allowing employees working from home to claim “modest expenses” of up to $400.
This is a simplified process that does not require the calculation of home office space; it is, rather, a per diem amount (for the number of days spent working at home). Receipts are not required, nor is detailed tracking; you can simply write off up to $400.
Deductions made on your taxes lower the taxable income, so having the home office tax break in the form of a deduction means that you may see some savings on both your federal and provincial returns. You will not be able to deduct home insurance, mortgage interest, or property taxes, though apparently taxpayers will be able to claim under the existing rules should they choose to do so. This would allow for the deduction of a percentage of your rent if you are renting your home.
According to the government’s website you can “only deduct workspace expenses from the income to which the expenses relate and not from any other income.” If you are not able to deduct all your workspace expenses in the year, you are able to carry them forward.
Simplified Home Office Expense Deductions for Employers
Back near the beginning of the COVID pandemic, employers were permitted by the CRA to reimburse an employee for up to $500 in “personal computer equipment” which would allow them to work from home. Home office furniture such as desks was later added to the list of expenses that could be reimbursed tax-free by employers. The CRA indicated clearly that the maximum tax-free reimbursement is applied per employee, not per piece of equipment. To qualify, the employee would need to have been working at home for at least half of the year as of the Fall. It is also recommended to keep any and all documentation for these expenses in the event of further changes to the tax code (as pertains to COVID-19) or a future CRA review or tax audit.
As mentioned above, employers were previously required to fill in the T2200 form stating that the employee was required to work at home. This year, employers will not be required to fill in the T2200 for employees being reimbursed the $500 in expenses.
As of December 20th, the rate for the Canada Emergency Wage Subsidy has been raised from 65% to 75%. This will extend to March 13, 2021. Additionally, the second loan available to eligible businesses under The Canada Emergency Business Account (CEBA) has had the deadline for applying extended to March 31, with $10,000 of the financing forgivable if repaid by the end of 2022.
For help with your office deductions, contact BCJ Group.