|Learn about the two methods for claiming home office expenses that are available to employees who worked from home in 2020 because of the pandemic. |
A previous Tax & Estate blog post, “Year-end tax tips for 2020,” reviewed the general eligibility criteria that permit non-essential employees working from home to deduct home office expenses. The fact is that the pandemic forced millions of Canadians to work from home, but meeting all the conditions for expense deductibility was difficult. Ongoing lobbying efforts with the Canada Revenue Agency (CRA) and the Ministry of Finance focused on easing the eligibility criteria, given the circumstances. In the Fall Economic Statement announced on November 30, 2020, the federal government responded with a simplified home office expenses claim process.
The Ministry of Finance says its aim is to make home office expenses available to more Canadians and simplify the way in which employees can claim these expenses on their personal income tax return for 2020. In the past, the only option to claim a deduction for home office expenses was for the employee to submit with his or her tax return Form T2200, “Declaration of Conditions of Employment,” or Form T2200S, “Declaration of Conditions of Employment for Working at Home Due to COVID-19.” Both forms must be issued by the employer, and the employee must meet certain conditions (discussed under “Option 2: detailed method”). To simplify the process for claiming home office expenses, the Ministry of Finance has introduced a new temporary flat rate method (discussed under “Option 1: temporary flat rate method”). It allows the employee to claim a deduction of $2 for each day he or she worked at home due to COVID-19, plus any other days he or she worked from home in 2020. The maximum claim is $400. Under this new method, an employee does not have to arrange for his or her employer to complete and sign Form T2200 or Form T2200S.
Let’s look in more detail at the two options available for claiming home office expenses in the 2020 tax year.
Option 1: temporary flat rate method
A taxpayer must meet all of the following conditions to calculate his or her deduction for home office expenses under the temporary flat rate method:
– The employee worked from home in 2020 due to COVID-19. Where the employer provided the employee with the choice to work at home due to the COVID-19 pandemic, the CRA will consider the employee to have worked from home due to COVID-19.
– The employee worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020.
– The employee is claiming home office expenses only, and not claiming any other employment expenses (e.g., motor vehicle expenses).
– The employer is not reimbursing the employee for all of his or her home office expenses. Where the employer is reimbursing the employee for some of his or her home office expenses, the employee may still use the temporary flat rate method, provided he or she meets the other conditions.
Note that under the temporary flat rate method, the employee does not need to determine his or her expenses to calculate home office expense deductions for the 2020 tax year. The purpose of the temporary flat rate method is to allow the employee to claim home office expenses incurred throughout the year (e.g., for rent, home internet access, cell phone minutes, electricity, and office supplies such as pens and paper) using a simple and straightforward process.
Option 2: detailed method
Alternatively, the employee may claim a deduction for home office expenses under the detailed method, provided he or she meets all of the following conditions:
– The employee worked from home or the employer required the employee to work from home in 2020 due to COVID-19.
– The employee was required to pay for expenses related to the work space in his or her home. If the employer reimbursed the employee for some of his or her home office expenses, the employee can still use the detailed method only on the expenses that the employer did not reimburse, provided he or she meets the other conditions.
– The employee’s work space was where he or she worked at least 50% of the time for a period of at least four consecutive weeks or the employee used his or her work space to earn employment income. The employee must also have used the work space regularly and continually for meeting clients, customers, or other people while doing his or her work.
– The employee’s expenses were used directly in his or her work.
– The employee has a completed and signed copy of Form T2200 or Form T2200S.
Under the detailed method, the employee claims the actual amounts paid for home office expenses. Find the CRA’s full list of work-space-in-the-home expenses that the employee may deduct under the detailed method here.
Rules for Quebec residents
In a recent press release, the Quebec government announced that it will mirror the federal changes by simplifying the deduction of home office expenses incurred due to COVID-19 during the 2020 tax year. Conventionally, Quebec residents must include Revenu Québec’s Form TP-64.3-V, “General Employment Conditions,” with their provincial tax return, and the CRA’s Form T2200 or Form T2200S with their federal tax return. However, Quebec is adopting new measures to allow an employee to claim, in his or her 2020 income tax return, a deduction of $2 for each day the employee worked at home in 2020 due to the COVID-19 pandemic, up to a maximum amount of $400. The simplified method waives the requirement to submit Form TP-64.3-V and either Form T2200 or Form T2200S, and the employee does not have to keep supporting documents to substantiate the deduction.
Similar to the federal provisions, Quebec will allow its taxpayers to choose between the temporary flat rate method and the detailed method to claim home office expenses during the 2020 tax year. The press release also stated that the Quebec Ministry of Finance will soon implement an interactive calculation tool to help Quebec taxpayers choose the most appropriate method for their particular circumstances. The calculation tool is expected here in the near future.
Additional information: Employer-provided benefits and allowances: CRA and COVID-19
Canada Revenue Agency makes it simpler to claim home office expenses due to COVID-19
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The information provided is general in nature and may not be relied upon nor considered to be the rendering of tax, legal, accounting or professional advice. Readers should consult with their own accountants, lawyers and/or other professionals for advice on their specific circumstances before taking any action. The information contained herein is from sources believed to be reliable, but accuracy cannot be guaranteed.