Deducting Home Office Expenses for 2020
Simplified Rules for Salaried and Commissioned Employees
By Susan Gottlieb
Millions of Canadians unexpectedly had to start working from home due to the COVID-19 pandemic. In response, the government announced plans in their Fall Economic Statement to simplify the process for deducting home office expenses. On December 15, 2020, the Canada Revenue Agency (CRA) released the details on a simplified method for claiming these expenses for 2020. This simplified method has made the home office expense deduction available to more individuals.
This abbreviated article discusses the circumstances in which home office expenses incurred by salaried and commissioned employees are deductible (in Ontario), as well as whether allowances and reimbursements provided by an employer are taxable.
Methods for claiming home office expenses
For 2020, there are two methods for claiming home office expenses on your personal tax return:
- Temporary flat rate method
- Detailed method
To be eligible for the temporary flat rate method, you must only be claiming home office expenses (such as electricity, home internet access fees, and office supplies like pens and paper) and not any other employment expenses (such as motor vehicle expenses). In addition, you can only use this method if your employer has not reimbursed you for all of your home office expenses. If you’re in a situation where your employer has reimbursed you for some but not all of these expenses, you can still use this method.
Alternately, the detailed method can be used if you’re claiming other employment expenses in addition to home office expenses, or if you have a larger claim and want to deduct the actual expenses you paid in order to work from home. The detailed method is more complex, as you will need to separate the expenses that relate to your employment from those that relate to your personal use and keep supporting receipts or documents. Your employer must also complete certain forms in order for you to claim expenses under this method.
The new temporary flat rate method is a simplified way to claim your home office expenses and can only be used for the 2020 tax year. You are eligible to use this method if you worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. Based on that eligibility, you can claim $2 for each day you worked at home in 2020. The maximum you can claim using this method is $400 (200 working days). If more than one person in your family is working from the same home, each person can make a separate claim.
If you were not required to work from home, but your employer provided you with the choice to do so because of the COVID-19 pandemic and you opted for that choice, the CRA will consider you to have worked from home due to COVID-19.
Qualifying workdays include those you worked either full-time or part-time hours from home. Days off, vacation days, sick leave days and other leaves of absence cannot be counted as workdays.
In using this method, you do not have to calculate the size of your work space or keep supporting documents for your claim. In addition, your employer does not have to complete or sign any forms. You will, however, have to complete “Option 1 – Temporary flat rate method” on Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19 and attach the form to your personal income tax return. For more information on how to make the claim on your personal tax return, please refer to the CRA website.
The detailed method: Determining your eligibility
Under the detailed method, you are eligible to claim a deduction for home office expenses for the period you worked from home, if you meet all of the following criteria:
- You were required to work from home by your employer, or you were given the choice to do so and you opted for that choice, due to the COVID-19 pandemic. Being required to work from home does not have to be part of your employment contract and may be a written or verbal agreement;
- You were required to pay for expenses related to the work space in your home;
- The expenses relate directly to your work during the period; and
- Your work space is where you mainly worked (more than 50% of the time) for a period of at least four consecutive weeks. Alternatively, these criteria may be met if you only use your work space to earn employment income and use it regularly and continually for meeting clients, customers or others while doing your work.
Determining your work space expenses
Whether you own or rent your home, the amount you can claim for the work space in your home must be apportioned on some reasonable basis, such as square footage of space used. For example, a reasonable apportionment could be the area of your work space at home divided by the total finished area of your home (including hallways, bathrooms and kitchen). The CRA has provided guidance on how to calculate the size of your work space. Please see the CRA website for more information.
As an example, assume you have a designated room in your house, such as an office or a spare room that you use only for work. If that room accounts for 20% of your home’s total square footage, you can deduct 20% of the expenses related to your work space. The percentage also applies to the amount of rent you can deduct if you rent your home. Continued..
Due to space limitation, we are unable to re-produce the entire 6-page article. Feel free to request an e-copy from me at susan.gottlieb@rbc.com or reference at www.susangottlieb.com
Conclusion As a result of the COVID-19 pandemic, you may have started working from home for the first time in 2020 and therefore may not be familiar with the rules for deducting home office expenses. Given the latest CRA and Revenu Quebec guidance, it’s important to speak with a qualified tax advisor to determine whether you can claim home office expenses and if you can, which method is best for you.
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