COVID-19 and Home-Office Expenses
The COVID-19 pandemic has forced many businesses to lock down their stores, offices and other business premises. It has been nearly four months since millions of Canadian employees began working from home. Such employees have created workspaces in their homes, from which they now carry out their employment duties. As well, many have made investments in home office supplies and equipment to perform their work. Some of these expenses relating to an employee’s home office may be deducted from one’s salary for the 2020 tax year provided it meets certain criteria. While employers may assist their employees in meeting these requirements, this raises questions as to the deductibility of home office expenses, including:
- Can employees deduct home office expenses for tax purposes?
- What kind of expenses are eligible for a tax deduction?
- What supporting documents do employees need to claim home office expenses?
- Does an employer have to certify an employee’s expenses?
Under the Income Tax Act (“ITA”), employees who are required to pay for employment expenses, including those for a home office that are not reimbursed by their employer may be able to claim a deduction on their tax return for such expenses.
This article reviews the tax deductibility of home-office expenses for employees, as well as the taxability of employer-provided technology allowances and reimbursements, in light of the current pandemic.
1. Form T2200 – Declaration of Conditions of Employment
An employee wishing to deduct Home Office Expenses must have a Form T2200 (Declaration of Conditions of Employment) signed by his or her employer. The portions of Form T2200 relevant for these purposes specifies:
- That the employee’s contract of employment required the employee to pay its own home office expenses while carrying out its duties of employment;
- That employee worked from home more than 50% of the time (year);
- Whether there was any allowance or reimbursement for such home office expenses;
2. Reimbursements and Allowances
To facilitate working from home during the pandemic, some employers have given their employees a technology allowance, which can be used to cover expenses such as upgrading home computers, buying webcams or investing in better headsets to facilitate Zoom meetings. Other employers may be simply reimbursing their employees for such purchases.
An allowance and reimbursement are similar, but the main difference is that with the former there is generally no direct, dollar-for-dollar relationship between the allowance paid and the actual costs incurred by the employee.
In a technical interpretation letter, the CRA stated, in normal circumstances, an allowance paid by an employer to an employee to facilitate teleworking would be considered a taxable benefit, as would the reimbursement for personal expenses to acquire technology used for teleworking.
However, it also acknowledged that the declaration of a state of emergency in Canada due to COVID-19 has precipitated teleworking for a number of employees who do not have the necessary computer equipment to do so. The CRA went on to say, given the current COVID-19 pandemic, it is prepared to accept that reimbursements of up to $500 towards the cost of personal computing equipment to enable an employee to work from home would be considered to primarily benefit the employer and, as a result, would not result in a taxable employment benefit, provided the employee presents a receipt for the amount spent.
In general, though, it is always better to get reimbursed from an employer for technology purchases as opposed to receiving an allowance. That is because while allowances result in taxable benefits for employees, reimbursements do not. If your employer will reimburse you, it is advisable to hang on to receipts. And if you are reimbursed for any supplies through work, you cannot claim any of those items on your return.
An allowance received by an employee to cover a portion of an employee’s Office Space Expenses would be considered a taxable benefit regardless of whether the employee could deduct the Office Space Expenses. The CRA has stated employees are usually required to include in their income the amount of an allowance they received from their employer and for which they are not required to justify the use. This requirement will not change because of the COVID-19 pandemic.
3. Supporting Documentation
Employees have the responsibility to track each of their home office expenses. They must be able to produce corresponding receipts to support each expense should they be requested by the CRA.
4. Completing your tax return
In order to claim home office expenses, you must complete the “Calculation of work-space-in-the-home expenses” portion of Form T777, Statement of Employment Expenses.
- Enter the lower amount of line 24 or 25 of Form T777 at line 9945.
- Enter on line 22900, the allowable amount of your employment expenses from the total expenses line of Form T777
5. How do I know how much to claim?
The amount to claim is calculated based on how much of your home is being used as a workspace. You can determine this percentage by dividing the square footage of your workspace by the total finished area of your home (including hallways and bathrooms). For example, if your answer is 20%, you would deduct 20% of home expenses as home office expenses on your tax return. Only claim the costs that pertain to the time period in which you worked from home.
The amount you claim cannot exceed your employment income earned during the period you worked from home. To reiterate, you cannot deduct home office expenses that have already been reimbursed by your employer.
6. What to do for now?
Right now, employees should be tracking all their expenses, in the event the CRA adjusts the 50% requirement for 2020 in light of COVID-19, or in the event the employee does work from home for greater than 6 months in the 2020 year. And, if your employer has agreed to reimburse you for the cost of some new home computer equipment, be sure to keep those receipts to corroborate a tax-free reimbursement (otherwise, that reimbursement is deemed to be income and becomes taxable to you).
The CRA has stated all Canadians have a role to play to help minimize the spread of COVID-19 by following public health advice, and for many people, that includes working remotely from home if possible. The rules regarding work-space-in-the-home expenses, however, have not changed. But there are many months ahead before 2020 taxes are filed and the CRA may still decide a change is warranted. While we wait for the CRA to clarify the rules surrounding the deductibility of home-office expenses under COVID-19, be sure to keep track of any expenses incurred while working from home so that you can easily claim them, if permitted, next tax season.
Baber Rahim, Tax Law Clerk & JD Candidate
© Kalfa Law, 2020
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.