The Covid 19 pandemic caused the closure of thousands of workplaces resulting in millions of employees across the country to work from home. If you were an employee who was required to work from home as a result of Covid 19, you can save a bit of income tax because you likely incurred expenses related to your employment. For the 2020 personal tax year, the Government of Canada has simplified the claims process and millions of employees will potentially be eligible. As always, if you have a question or think you might want to work together, please get in touch through my Home Page. Also, never miss a blog by following me on LinkedIn or Facebook.
This guide is meant to summarize a lot of Government of Canada text so that employees who normally don't claim work from home expenses can understand the overall process. In a few steps, I've generally outlined how to determine your potential home office / workspace tax deduction. For all the details, especially for unique cases and scenarios, make sure you review official Government of Canada sources of information or consult your accountant. I've also included useful links below in reference to the steps.
Step 1 - Determine Employee Eligibility
Before you even think about a work from home tax deduction for yourself, you need to be eligible.
From the Government of Canada:
Employees who worked from home more than 50% of the time over a period of a least four consecutive weeks in 2020 due to COVID-19 are eligible to claim the home office expenses deduction for 2020.
In past "normal" years, employees that wanted to claim home office or workplace expenses needed to satisfy 5 key conditions of employment. These 5 key conditions were almost never met and resulted in very few employees actually being allowed to claim expenses against employment income. The above Covid 19 work from home criteria represents a major softening of eligibility requirements. As a result, it is expected that millions of Canadians will be able to claim home office or workplace expenses for the 2020 personal tax year.
As long as you meet this criteria, you can move on to Step 2.
Step 2 - Use the "Temporary Flat Rate Method" or the "Detailed Method"
Temporary Flat Rate Method
The temporary flat rate method allows employees to claim a deduction of $2 for each day they worked at home during 2020 as a result of Covid 19. Remember, you must meet the minimum days worked at home in Step 1 to claim anything. However, once that minimum is met, you should be able to claim the days in that period, plus any days worked after that period. So for example, if you were required to work from home from March 16 to May 31, and you only worked Monday to Friday, you would be eligible for 55 days for a simplified deduction of $110 (55 days x $2). Note: You should remove any stat holidays from your count that you didn't work, I didn't consider them in my example. Also remember, this is a deduction, and doesn't equal money in your pocket, if your marginal personal tax rate is 25%, you would only get back $27.50. Also, not included in this example, but for any other days after May 31 that you were required to work from home, perhaps due to limited office capacity / rotating days in the office, you could also add those days into this calculation. Any deduction you determine under this method goes on line 22900 of your 2020 personal tax return, your choice of this method over the detailed method below is documented on form T777S. Don't worry, whatever software or method you use for reporting your personal taxes will have these forms built in.
Overall, if the Flat Rate Method seems kind of insignificant to you, keep reading as you may prefer the Detailed Method.
The detailed method is well, you guessed it, a detailed calculation of your actual expenses incurred for the purposes of employment. It's more work, however, your deduction is likely to be more than just $2 a day. Here are the general steps for this method:
Step 1 - Get a Form T2200S Signed
First of all, the Government of Canada doesn't trust you as much if you're going to be using the detailed method to calculate home office /workplace expenses. You will have to have your employer verify that you were indeed required to work from home by getting them to sign form T2200S. Special Note: This form has been greatly simplified from the regular "T2200" which was used in past "normal" years so your employer shouldn't be overburdened. Your employer should have no problem signing this for you if you were required to work from home. Please keep in mind, you still need to meet the minimum criteria in Step 1 to use this method. Also, if you are thinking about claiming anything other than home office / workplace expenses, for example vehicle costs or tools, this temporary Covid 19 T2200S form isn't for you, you should look at the regular T2200 form which you've probably seen in the past. This is the form that I mentioned earlier which requires 5 key conditions of employment to be met. Here's a link to form T2200S so you can have your employer sign it for you:
Step 2 - Determine your Home Office or Workspace Use and Size
Most employee home office expenses will be relative to size of your workspace or home office. Expenses for things like utilities and rent are based on the square footage of your workspace. The Government of Canada has spent a lot of time helping you determine the size of your home office or workspace. In addition, they have prepared a whole array of finer details on things like hours worked in home offices and situations with multiple workers sharing a space. I would highly recommend reviewing those finer details here:
Determining your Home Office or Workspace Use and Size
Once you've determined your home office / workspace use and size, move to the next step.
Step 3 - Determine your Detailed Home Office or Workspace Expenses
You cannot claim a tax deduction for personal expenses, you need to determine expenses which were incurred relating to your employment. For home offices or workspaces, typical expenses would include utilities, rent, internet fees, cell phone costs, office supplies, maintenance and minor repairs, etc. The employment related portion of these expenses is generally determined using square footage or another basis in the case of internet or phone expenses.
Again, the Government of Canada is anticipating a lot of expense claims and has created a very detailed guide to help you determine what you can and cannot claim. As a result, I would definitely read through their detailed guidance. HOWEVER, I would strongly recommend you check back to this page prior to actually filling your tax return as I imagine it's going to change. For example, currently, this page says you cannot claim mortgage interest, however, this doesn't really make sense and puts home owners at a disadvantage since rent paid is an allowable expense. See the Government of Canada guidance of expenses you can claim here:
Overall, many employees are going to save a bit of taxes this year as a result of working from home. The Government of Canada has done a good job lowering eligibility criteria and simplifying the process. The least complicated method is the Flat Rate Method, however, the Detailed Method is available as well. The Detailed Method is more work, but it can result in a larger deduction and would certainly be preferred if you worked for an extended period at home.