How-To Guide on Employee Home Office Expenses Deduction due to COVID-19

COVID-19, News, Taxes
Author: Sean Duffy  -  Published: 21/01/2021

COVID-19 and working from home. Some feel strongly about it, others not so much. The CRA has released guidance on the home office expenses deduction that employees may claim on their 2020 personal income tax return (T1) because of the COVID-19 pandemic.  

How does it work? Read on to find out, and feel free to reach out to your Elevate by Welch professional to learn more and ensure you optimize your 2020 tax return. 

Eligibility

To claim a home office expenses deduction, you must meet all of the criteria:

  • Your employer required you to work from home or you chose to work from home in 2020 due to the COVID-19 pandemic;
  • You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020;
  • Have an employer certified copy of the Form T2200S or Form T2200 (only applicable if the detailed method has been chosen for the claim), and
  • Eligible expenses were consumed directly due to your work during the claim period
The CRA has also published a number of resources to assist both employees and employers, including

Two available options

If you meet the eligibility criteria, you have two options to calculate the deduction for home office expenses:

  • Temporary flat rate method
  • Detailed method

Employers may suggest a method for their employees. It is the employees who have the ultimate authority to choose which method to use.

The CRA has designed a calculator (specifically to assist with the calculation of eligible home office expenses).

Temporary flat rate method

What is it?

If you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to COVID-19, you can claim $2 for each day that you worked at home up to a maximum of $400 (200 working days) per individual.

If working at home and claiming home office expenses was the norm for you pre-COVID-19, you cannot use the temporary flat rate method to complete your 2020 claim. 

What counts as a work day?

Days you worked full-time hours, overtime-hours or part-time hours from home.

Days that cannot be counted: days off, vacation days, sick leave days, other paid or unpaid leave of absence.

Do I need from my employer a certified Form T2200 Declaration of Conditions of Employment or Form T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19?

No.

Do I need to retain documents in support of my claim?

No.

How to claim?

You would need to complete the “Options 1 – Temporary flat rate method” section on Form T777S Statement of Employment Expenses for Working at Home Due to COVID-19.

Is the deduction calculated by the individual or by the household?

Each employee working from home who meets the eligibility requirements can use the temporary flat rate method to calculate his/her deduction. If there are more than one eligible employee working at home in the same household, each can choose his/her method to calculate the deduction.

What types of expenses are covered by the $2 flat daily rate?

The temporary flat rate method is used to claim home office expenses that you paid like rent, electricity and home internet access fees, as well as office supplies like pens and paper, and cell phone minutes.

Under this method, you cannot claim any other type of work-space-in-the-home-expenses,  home office expenses or costs for items purchased of a capital nature. 

Can I claim any other employment expenses?

No, you cannot claim any other employment expenses such as allowable motor vehicle expenses, parking, travelling expenses, etc. 

Is the up-to-$400 a credit or a deduction?

Home office expenses can be claimed as a deduction on an employee’s personal income tax return. A deduction reduces the amount of income they pay tax on, so it reduces their overall income tax liability.

Will the temporary flat rate method be extended past 2020?

No. The temporary flat rate method only applies to the 2020 tax year.

Detailed method

What is it?

If you meet all of the criteria listed above under the “Eligibility” section, you may use the detailed method or the existing method to deduct home office expenses. 

Do I need a certified Form T2200S or Form T2200 from my employer?

Yes.  

Form T2200S is a new simplified form for employers to complete and sign for employees who meet the eligibility requirements and who choose to use the detailed method.

If an employee pays for other employment expenses, such as allowable motor vehicle expenses, parking, travelling expenses, the employer must complete the traditional Form T2200.

For 2020 only, the CRA will accept an employer’s electronic signature on Form T2200S or Form T2200.

Do I need to retain documents in support of my claim?

Yes. Generally, you must keep all required records and supporting documentation for a period of six years from the end of the last tax year they relate to.

How to claim?

You can claim the actual working-at-home eligible expenses you paid that are supported by documents. Eligible expenses will be detailed out in the “Options 2 – Detailed method” section on Form T777S Statement of Employment Expenses for Working at Home Due to COVID-19.

How to determine the employment use of work space?

Whether you work in a spare room exclusively used as your work space at home, or at the dining table sometimes or at the kitchen table other times, there are several factors to consider when calculating the employment use of the work space at home, for example:

  • Size of your home and work space (measured in square meters or square feet)
  • Types of work space (common area vs. designated room)
  • Hours per week you use the space for work
  • Number of workers in the home
  • Change of work space

The CRA may accept a method of calculation other than one based on square meters (feet), as long as you are able to demonstrate to the CRA that your calculated percentage of use is reasonable.

What are eligible expenses?

Commonly seen eligible work-space-in-the-home expenses and other home office expenses include:

  • Utilities (electricity, heating/gas, water)
  • Minor maintenance (such as cleaning supplies, light bulbs)
  • Rent
  • Condo fees
  • Office supplies consumed directly and “play an integral and essential part” in carrying out your employment duties (such as, pens, ink cartridge)
  • Cell phone usage for the portion directly used in earning employment income  

The CRA has expanded the list of eligible expenses that can be claimed to include home internet access fees.

Note that salaried employees cannot include the expenses paid pertinent to home insurance, property taxes and mortgage payments (principal and interest) in calculating the home office expenses.

Can I claim any other employment expenses?

If you are eligible to deduct home office expenses by meeting the requirements listed in the “Eligibility” section above, you would use T2200S and T777S forms to complete the claim. You cannot claim other employment expenses such as allowable motor vehicle expenses, parking, travelling expenses, etc. 

If you are eligible to deduct home office expenses by applying the traditional criteria, which are outlined in the CRA Guide T4044 Employment Expenses, you would use T2200 and T777 forms to complete the claim. You can claim other employment expenses such as allowable motor vehicle expenses, parking, travelling expenses, etc.   

Home Office Equipment up to $500

The CRA has expanded its previous position (2020- 0845431C6 (F)) on employer reimbursement of personal computer equipment to include home office equipment. In the COVID-19 context, the CRA will not consider an employee to have received a taxable benefit where their employer pays for or reimburses up to $500 of computer or home office equipment that enables the employee to carry out their employment duties by working at home. To be treated as a non-taxable benefit, the employee must submit receipts to the employer. The CRA indicates that home office equipment would include items such as desks or chairs.

Jessica Zhang-Chapman, CPA, CGA, CIA, of Welch LLP illustrates it perfectly with a great example: 

“ For example, if an employee purchased a second computer monitor for $300 plus an adjustable desk for $400, and the employee submitted receipts in support of the purchases, an employer can reimburse the employee up to $500 without the employee receiving a taxable benefit under the CRA administrative policy in the COVID-19 context. If the employer reimburses the full $700 for the purchases, the amount over $500 (that is, the $200) must be included in the employee’s income as a taxable benefit”

Parsing through tax guidance can be daunting. If you are unsure of where to start, need help moving it along, or want to entrust us with your personal taxes, please reach out to us at sduffy@welchllp.com

Author Profile

Sean Duffy
Sean Duffy
Senior Manager
sduffy@welchllp.com
613-236-9191 Ext:155

Sean Duffy is the Senior Manager at Elevate by Welch, with more than 10 years of accounting & finance experience. Sean is one of the very few cloud-based accountants who have an in-depth knowledge of Quickbooks Online as well as desktop applications. His familiarity with these cutting edge technologies allows his clients to benefit from a more streamlined process while still maintaining secure data backups and information security protocols.
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