As the COVID-19 pandemic shifts employees from their offices to their homes, many employees are left wondering whether they’ll now be able to deduct home office expenses from their employment income in their 2020 tax return. Here we breakdown what you need to know about eligible deductions and answer some commonly asked questions.
Will I be eligible to deduct home office expenses in 2020?
Prior to the COVID-19 pandemic, an employee could claim home office expenses if they were contractually required to maintain a home office they were not reimbursed for, and met one of the following two conditions:
- The home office is the place where the employee principally performed their employment duties; or
- The space is used exclusively during the period for the purposes of earning employment income on a regular and continuous basis, and for meeting customers or other persons in the ordinary course of performing employment duties.
Given the circumstances surrounding COVID-19, these requirements have become increasingly difficult to interpret and apply.
Do I need a written agreement to formalize a work from home arrangement?
To deduct home office expenses, an employee would generally need:
- a work from home arrangement included in the individual’s employment contract, and
- Form T2200, completed by the employer.
Given the rapidly shifting environment, it appears the CRA may provide an administrative concession by not requiring employers to modify employment contracts with their employees to formalize COVID-19 work from home arrangements.
Further, the CRA may review the requirement to complete Form T2200 for each employee (which may be quite burdensome in the case of companies with many employees). As details on any changes are yet to be announced, Form T2200 should still be completed.
What if I only work from home during the COVID-19 period?
The test above is based on whether the employee principally worked from home, which is generally understood to mean more than 50 percent throughout the calendar year. Based on preliminary discussions between the CRA and CPA Canada, however, it appears the CRA may accept that this test could apply only to the period where COVID-19 measures are in place. As such, employees may be able to make deductions for the portion of the year they are working from home due to COVID-19 safeguards.
Can I “meet” customers over the phone or through other digital means?
The CRA’s long standing position is that meeting customers is a face-to-face event. Given current public health recommendations, it is unclear whether the CRA will reconsider this position to include virtual meetings using online conferencing platforms such as Zoom or Skype.
I think I might be eligible. What expenses can I deduct?
Expense deductibility is different for non-commissioned and commissioned sales employees. Generally speaking:
- Non-commissioned employees can deduct a reasonable portion of: rent, utilities, repairs and maintenance, and supplies.
- Commissioned employees can deduct a reasonable portion of: rent, utilities, repairs and maintenance, supplies, property taxes, and home insurance up to the amount of commission income.
This reasonable portion is generally based on the square footage of the space you use for work purposes as a percentage of the total square footage of your home. If that space is used for personal reasons too, this would generally reduce the amount that can be deducted as a home office expense.
Documentation should be kept for all deducted expenses incurred in case of a CRA review or audit. Note items such as home depreciation, mortgage interest, computer equipment, and home office furniture cannot generally be deducted from employment income as they are capital in nature.
What if my employer reimburses me for the cost of home office equipment?
Given potential costs in setting up a home office, the CRA has indicated that reimbursements to employees up to $500 for computer equipment will not be considered a taxable benefit to employees, provided they retain supporting receipts. The CRA may further broaden this policy to include other types of home office equipment, although this remains outstanding.
For example, if an employee purchases a laptop computer for $800 and the employer reimburses the full amount, the employee would only be required to include a $300 taxable benefit in their income. The employer, however, would generally be able to deduct the full $800 reimbursement.
It is expected these rules and interpretations will continue to change rapidly.
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