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:

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:

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:

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:

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

Were you eligible for the 10% Temporary Wage Subsidy and you accounted for it during 2020? If you did and you have a payroll account with the Canada Revenue Agency, you have to complete and submit Form PD27. As an employer, filing your TWS information on time is important. Elevate and Alex Mitrovic, CPA, CA, of Welch LLP will guide you through this important process.

“There is light at the end of the tunnel as to the global pandemic and the havoc it has caused for Canadian business owners”, says Alex, he continues “it’s important to remain compliant with CRA regardless of your situation. My team, along with Elevate, want everyone to be as audit-proof as ready. We have helped countless businesses stay afloat and thrive despite the upheaval – let’s get to the finish line together and ensure all is in order”. Alex has provided the following information to help you get there.

Do any of the following apply to you:

Form PD27 Due Before Filing of T4s

CRA has indicated that the PD27 must be processed by them before the TWS credits claimed by the employer will be posted to the source deduction account. Consequently, the PD27 needs to be filed before the T4s are filed as it informs CRA of the discrepancy between the remitted amounts during the year and the tax deductions reported on the T4s. Failure to do so may trigger a Pensionable and Insurable Earnings Review (PIER) by CRA.

Part D of Form PD27 requires the employer to provide details of the calculated wage subsidy, and also provides a box for written comments to provide further details not included in the calculations. CRA will use this form to verify the TWS claimed as well as reconcile to the CEWS claimed, if applicable. Eligible employers who only claimed the CEWS are still required to file Form PD27, indicating in the comment box the lower percentage claimed.

Claiming the TWS

If you have not yet reduced your remittances with the TWS, you can still calculate and apply for the subsidy using the Form PD27. Employers should indicate in the Additional Comments section of the Form how they would like to apply the subsidy. The three options are:

If you are not sure where to start, click on the following link: https://www.canada.ca/en/revenue-agency/services/subsidy/temporary-wage-subsidy.html

Completing Form PD27

For each pay period identified on the form, the employer will need to provide the following information:

The self-identification form can be submitted online, by mail or fax. Online submissions are filed through CRA My Business Account. Parsing through payroll guidance can be daunting. If you are unsure of where to start, need help moving it along, or want to entrust us with the work, please reach out to us at sduffy@welchllp.com

Resource: https://www.canada.ca/en/revenue-agency/services/subsidy/temporary-wage-subsidy/tws-reporting.html

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