The federal government has extended the temporary flat rate method of claiming employee home office expenses for the 2021 and 2022 tax years. This means eligible employees working from home during COVID-19 have two options to claim home office expenses: the temporary flat rate method and the detailed method.
The eligibility requirements for employees to claim a home office expense deduction in 2021 and 2022 remain the same as in 2020 and are summarized below.
1. The temporary flat rate method
The temporary flat rate method was first introduced by the Canada Revenue Agency (CRA) in 2020. In late 2021, the federal government extended it to the 2021 and 2022 tax years, and increased the maximum deductible from $400 to $500.
The temporary flat rate method simplifies home office expense claims for employees who are eligible and choose to use this method.
Who is eligible to use the temporary flat rate method?
As an employee, you are eligible for this method if you:
- worked from home in 2021 due to COVID-19 (if you were not required to work from home but your employer provided you with the choice to work at home because of the pandemic, the CRA will consider you to have worked from home due to COVID-19);
- worked from home more than 50% of the time for a period of at least four consecutive weeks in 2021 due to the COVID-19 pandemic;
- are only claiming home office expenses and are not claiming any other employment expenses; and
- were not reimbursed by your employer for all your deductible home office expenses.
How to calculate your home office tax deduction
Under the temporary flat rate method, the home office expense deduction is calculated at $2 per day for each day the eligible employee worked from home in 2021 due to COVID-19, up to a maximum of $500 (i.e., 250 work at home days). Days off, vacation days, sick leave days, and other leaves or absences don’t count as a workday from home.
If multiple people are working from the same household and are eligible to use the temporary flat rate method, each of them can make an individual claim.
No need to track expenses or obtain Form T2200
Consistent with 2020, employees who use the temporary flat rate method do not need to track expenses, perform workspace calculations, or keep receipts. You also don’t need to obtain Form T2200 or T2200S, which must normally be obtained from your employer as proof you were required to work at home as a condition of your employment.
2. The detailed method
Before the temporary flat rate method was introduced, the detailed method was the usual way in which employees claimed home office expenses. Due to COVID-19, eligibility for this method has been broadened for the 2020, 2021, and 2022 tax years.
Who is eligible to use the detailed method?
As an employee, you are eligible for this method if:
- you worked from home in 2021 due to COVID-19 (if you were not required to work from home but your employer provided you with the choice to work at home because of the pandemic, the CRA will consider you to have worked from home due to COVID-19), or were required to work from home by your employer;
- you were required to pay for expenses related to the workspace in your home;
- your workspace is where you worked more than 50% of the time for a period of at least four consecutive weeks in the year, or you only use your workspace to earn employment income and it is used regularly and continually for meeting clients, or other people for work;
- your expenses are used directly in your work; and
- you obtain a signed Form T2200 or T2200S from your employer.
How to calculate your deduction
The detailed method allows eligible employees to claim the employment portion of actual deductible expenses paid.
To calculate your deduction using the detailed method, you need to determine the proportional size of your workspace compared to the total finished areas within your home, and the amount of time that your workspace is used for work in order to calculate your workspace in home deduction.
As these calculations can be tedious, the CRA has provided examples and an online calculator to assist. The CRA has also indicated that it generally allows some flexibility in allowing an employee and their spouse or common-law partner to decide how to share deductible workspace expenses, provided the eligibility requirements are met and the expense is claimed as a deduction only once.
How to track home office expenses
The detailed method requires that you itemize and keep receipts for all home office expenses. The CRA has provided a list of common office supplies and phone expenses and a list of work space in home expenses that are deductible.
For example, deductible expenses include stationery, printer ink cartridges, utilities, and rent, but do not include property taxes and home insurance (unless you are a commissioned salesperson), mortgage interest, or items of a capital nature such as monitors and office chairs.
Since 2020, the CRA allows home internet access fees to be claimed under this method, but keep in mind that only the employment use portion of these expenses can be claimed. This is generally based on the square footage of your workspace as a proportion of your total home, as well as the hours you use that space for work out of a total 168 hours in a week (see examples provided under the Which home office expense claim method is right for me? heading below).
If you are a commissioned salesperson, not only can you deduct workspace expenses as a regular employee against your salary, you may also deduct certain expenses as a commissioned salesperson that would not otherwise be deductible by a regular employee. The rules that apply to commissioned salespersons provide a bit more flexibility, generally allowing you to deduct any reasonable expense incurred to earn commission income. Keep in mind, however, that you can only deduct such expenses to the extent of your commission income and no carryforward is available.
Form T2200S or T2200
You will need to obtain the signed T2200S or T2200 from your employer to make a claim under the detailed method.
The T2200S, which was introduced for 2020, is a shortened version of the T2200 that employers should prepare for their employees who worked from home due to COVID-19 and wish to claim home office expenses under the detailed method. This simplified form only requires employers to confirm that the employee worked at home due to COVID-19, whether they were reimbursed for home office expenses, whether any reimbursement amount has been included in their T4 slip, and sign the declaration. The 2021 version of the T2200S is available on the CRA website.
Note that you cannot use the T2200S if you are also making a claim for other employment expenses, such as motor vehicle expenses. You also cannot use the T2200S if you were eligible to claim home office expenses prior to the COVID-19 crisis. In both situations, the T2200 should be used. The relevant Form T2200 or T2200S should be kept on file but does not need to be submitted with your tax return.
Which home office expense claim method is right for me?
If your work or home situation has changed since you filed your 2020 return, you may want to estimate the deduction under both methods to see if the detailed method gives you a higher deduction, provided you meet the eligibility requirements.
The detailed method typically yields a higher deduction for employees who rent their home. Consider this: if you rent an apartment for $1,500 a month, have a room designated for work purposes that represents 10% of the total square footage of the apartment, and worked from home for all of 2021 due to COVID-19, your home office expense deduction on the rent would be $1,800—10% x ($1,500 rent per month x 12 months)—under the detailed method, which is much higher than the $500 maximum deduction available under the temporary flat rate method.
There are also additional deductible expenses like electricity, heat, and home internet access fees that can be included in your calculation, and the employment use portion would increase your home office expense deduction under the detailed method.
However, if you worked in a common space instead of a designated workspace, such as your dining table, then you would need to further prorate based on your work hours. Extending the same example where you work at a dining room table that represents 10% of the total square footage of your home and you work 37.5 hours a week out of a total of 168 hours a week, your home office expense deduction on your rent under the detailed method would be about $401 (i.e. 37.5/168 x $1,800 previously calculated).
Keep in mind that if you choose the detailed method, you need to obtain a signed T2200S or T2200 from your employer and track your expenses and receipts.
How to make a home office expense deduction claim
The CRA has released Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19 for 2021, which is a shortened version of the T777. You need to complete this form and file it with your 2021 tax return to claim a home office expense deduction. It can be used for either the temporary flat rate method or the detailed method of claiming home office expenses.
Note that you can only use the T777S if you are not claiming any other types of employment expenses.
Claiming home office expenses with Revenu Québec
On its COVID-19: FAQ for Individuals webpage, Revenu Québec (RQ) confirmed it would continue to parallel the federal measures to simplify the process for employees deducting their home office expenses incurred during COVID-19 for 2021. Employees can choose between the temporary flat rate method (maximum deduction of $500) or the detailed method.
Consistent with 2020, employees need to obtain form TP-64.3-V, General Employment Conditions from their employer when using the detailed method. This is Quebec’s version of the federal Form T2200.
Although there is no simplified TP-64.3-V, the form indicates that only certain questions need to be answered for employees who worked from home because of the pandemic. Employees need to complete Parts 1 and 3 of form TP-59.S-V, Expenses Related to Working Remotely Because of the COVID-19 Pandemic for a home office expense deduction claim and file it with their tax return. This form is Quebec’s version of the simplified federal Form T777S.
A note to employers on home office expense deductions
Many employees may want to claim a home office expense deduction using the detailed method and will therefore need a signed T2200S, T2200, and the TP-64.3-V for Quebec purposes where applicable. These forms are comparable to the ones used for 2020 and the CRA and RQ will continue to accept electronic signatures on these forms this year.
How BDO can help
Based on last year’s experience, you may already have a process in place to prepare these signed forms for your employees. However, if you are experiencing resource constraints or could benefit from a more streamlined process, a trusted BDO advisor is ready to help you through these challenging times.
The information in this publication is current as of February 3, 2022.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.