Home office expenses for employees
Home office expenses can typically only be claimed by entrepreneurs who operate primarily out of their homes or by employees whose employers require them to work from home. In the second case, employers must provide a form T2200 Declaration of Conditions of Employment declaring the arrangement to the CRA in order for employees to claim certain home office expenses. The employee would then complete form T777 Statement of Employment Expenses in their T1 personal tax return to calculate their claim.
In 2020, COVID-19 introduced a new dynamic: public health orders, and general common sense, mandated that people work from home where possible in the interest of safety. As a huge amount of office and computer-based jobs shifted to home offices across Canada, employers became faced with the daunting prospect of preparing T2200s for huge tranches of its work force that previously didn’t need one. The effort required to prepare a single T2200 is substantial, the government has recognized this and has provided some relief for employers and employees in 2020.
How employees can claim home office expenses
On December 15, 2020, the CRA released details on the methods for employees to claim home office expenses. The updated centered around 3 topics:
- A new temporary flat rate method for claiming home office expenses.
- A new option to claim the actual amount you paid, the detailed method.
- New eligible expenses that could not previously be claimed by employees.
Temporary flat rate method
If you worked from home more than 50% of the time for a period of at least four consecutive weeks during 2020 because of the COVID-19 pandemic, you could claim $2 for each day you worked from home PLUS $2 for each additional day you worked from home during 2020 because of the COVID-19 pandemic. Some highlights of the Temporary flat rate method:
- This claim can be made regardless of whether your employer required you to work from home.
- You employer cannot have reimbursed you for all your home office expenses. If your employer reimbursed you for a portion of your home office expenses, you are still eligible to make a claim.
- The maximum an individual can claim is $400 (200 days). This is a deduction, so the amount of tax benefit you will receive depends on your marginal tax rate. In other words, if you are a top income earner paying 48% tax, you will receive $192 in benefit. If you are a low-income earner paying 15% tax, you will receive a benefit of $60. NOTE: This seems counterintuitive to the Federal Government’s stated objective of “helping the middle class” as this deduction favors the wealthy. If the government were serious about helping the middle class, they would have made this a tax credit instead, ensuring that lower income folks would receive the same benefit as the wealthy.
- This can be claimed by multiple individuals working in the same house, provided they are each, individually, eligible.
- You can claim a day that you worked either part time or full time.
It may be beneficial for you to claim the actual amount of home office expenses you paid during 2020 if the amount exceeds the amount calculated under the temporary flat rate method. You are eligible to make a claim under the detailed method if you worked from home (or your employer required you to work from home) more than 50% of the time for a period of at least four consecutive weeks during 2020 because of the COVID-19 pandemic. Your employer must provide you with a completed and signed form T2200 or T2200S. Note that electronic signatures are now accepted by the CRA.
It can be very confusing to know what you can claim, and the rules for employees are different than for self-employed individuals. To help you understand what can be claimed, the CRA has created an online calculator (link) to ensure help you with your claim.
When to use the detailed method
Many employees will want to claim their home office expenses using the detailed method because it will be largely beneficial for them to do so. It is likely that many employers will face the additional burden of completing the new simplified form T2200S (discussed below) for those employees, and they should plan for the additional payroll work required to prepare those forms (generally provided with an employees T4). Here’s a basic example of the benefits of the detailed method, along with a calculation taken straight from the CRA’s online calculator:
- Worked from home: April 1, 2020 – December 31, 2020 : 9 months or 40 weeks
- Total finished area of your home: 2,800 sq ft
- Designated workspace (room) in your home: 120 sq ft (4.29%)
- Rent: $1,800/month
- Utilities (including internet): $500/month
- Other home expenses: $Nil (commission employees can include property tax and insurance)
- Maintenance costs for designated workspace: $300 (upgrading lighting, paint, installing hard internet, etc..)
- Office supplies: $250
- Cell phone: $50/month
- Employment income: $60,000
Temporary flat rate method: $400 deduction. Max tax savings: $192 (AB – 2020)
Detailed method, $1,187.14 deduction. Max tax savings: $569.83 (AB – 2020)
The CASH advantage of using the detailed method, in this scenario, is up to $377.83 (AB – 2020)
New simplified form T2200S and T777S
On December 15, 2020, the CRA released the new, simplified, form T2200S Declaration of Conditions of Employment for Working at Home During COVID-19 and accompanying form T777S Statement of Employment Expenses for Working at Home Due to COVID-19. These new simplified forms are shorter versions or the originals that are focused on claiming only home office expenses.
The new form T2200S is a one-page document with three yes/no questions intended to make it easier for employers to complete in higher volumes. NOTE: This form is not required for employees to make a claim under the new Temporary flat rate method (detailed below). Form T2200 and T2200S are not submitted with an employee’s tax return, but the employee must retain it in case the CRA requests a copy.
The new form T777S is a simplified schedule on the employee’s personal tax return on which the employee calculates its home office claim using either the new Temporary flat rate method, or the new detailed method. Note: if an employee is claiming other employment expenses, such as automobile expenses, the regular T2200 and T777 are still required.
- You can check your eligibility to claim the Temporary flat rate method on CRA’s website here.
- CRA’s Home office expenses for employees provides a listing of what can and cannot be claimed; and it lists the additional items that can be claimed by commissioned employees.
- CRA’s FAQ on Home office expenses for Employees addresses all kinds of questions from leaves of absence, part time work, reimbursements etc…
- The CRA are hosting a Q&A about the new measures on January 14, 2021. Register here.
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