Claiming a home office expense deduction for 2020

January 5, 2021 BDO CANADA

On December 15, 2020, the Canada Revenue Agency (CRA) provided details of a new additional method that eligible employees could use to claim work from home tax deductions for 2020. This new method — the temporary flat rate method — is only available for 2020. The existing detailed method continues to be available and eligible employees can choose the method that provides them with a higher tax deduction.

New temporary flat rate method

The new temporary flat rate method simplifies home office expense claims for employees who are eligible and choose to use this method for 2020.

Eligibility

As an employee, you are eligible for this method if you:

  • worked from home in 2020 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 COVID-19, then CRA will consider you to have worked from home due to COVID-19);
  • worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 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 of your deductible home office expenses.

Calculation of deduction

Under the temporary flat rate method, the home office expense deduction is calculated as $2 per day for each day the eligible employee worked from home in 2020 due to COVID-19, up to a maximum of $400. Each eligible individual can use the temporary flat rate method to calculate a deduction for home office expenses, which means that multiple people working from the same home can each make a claim.

For an employee who works five days a week who started working from home on March 16, 2020 due to COVID-19, you would need to have worked from home until the end of 2020 to be eligible for the maximum $400 claim (i.e., 200 work at home days). Note that days off, vacation days, sick leave days and other leaves or absences cannot be counted as a workday from home.

No need to track expenses or obtain Form T2200

Employees who use this temporary flat rate method do not need to track expenses, perform workspace calculations, or keep receipts. You also won’t need to obtain Form T2200 (or the new T2200S) from your employer, which must normally be obtained from your employer as proof you were required to work at home as a condition of your employment.

Detailed method

If you are an eligible employee, you can choose to use the detailed method to claim home office expenses that were paid for the period that you worked from home. Before the introduction of the new temporary flat rate method, the detailed method was the usual way in which employees claimed home office expenses.

Eligibility

As an employee, you are eligible for this method if:

  • you worked from home in 2020 due to COVID-19, or was required by your employer to work from home;
  • you were required to pay for expenses related to the work space in your home;
  • your work space is where you primarily (more than 50% of the time) work for a period of at least four consecutive weeks, or you only use your work space 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 new Form T2200S from your employer.

Calculation of deduction

The detailed method allows eligible employees to claim the employment portion of actual amounts paid. This usual way of claiming home office expenses requires you to determine the proportional size of your workspace compared to total finished areas within your home, and the employment use percentage of your workspace in order to calculate your workspace in home deduction. Though these calculations can be tedious, the CRA has provided examples and a new calculator to assist.

Expense tracking

Using the detailed method requires that you itemize your expenses and keep receipts. 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. If you are a commissioned salesperson, not only can you deduct workspace expenses as a regular employee against your salary, you may also be able to 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.

The CRA has provided a list of common office supplies and phone expenses, as well as a list of work space in home expenses that are deductible. New for 2020, the CRA is now allowing home internet access fees to be claimed.

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 CRA introduced a new T2200S, which is a shortened version of the T2200 that employers can use for employees who wish to claim home office expenses under the detailed method.

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 of these situations, the T2200 should be used.

Choosing between the two methods

With the option to select the method to use, 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. Using the detailed method would likely be most beneficial to employees who rent their home.

For example, if you rent an apartment for $1,500 a month, have a room designated for work purposes only, this workspace represents 20% of the total square footage of the apartment, and you worked from home for 9.5 months (or 200 days) due to COVID-19 in 2020, then the detailed method for expense deductions is the better choice. Under the detailed method, the home office expense deduction on the rent would be $2,850 —20% x ($1,500 rent per month x 9.5 months)—which is much higher than the $400 cap under the new temporary flat-rate method.

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.

Making a home office expense deduction claim

The CRA has provided a new Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19, which is a shortened version of the T777. You need to complete this form and file it with your 2020 tax return in order to claim a home office expense deduction. Note that you can only use the T777S if you are not claiming any other types of employment expenses, and you can use it for either the new temporary flat rate method or the detailed method of claiming home office expenses.

Revenu Québec announcement

On December 16, 2020, Revenu Québec (RQ) announced that it would parallel the federal measures to simplify the approach for employees to deduct their home office expenses incurred during COVID-19 for 2020. Consistent with CRA’s announcement, employees can choose between the temporary fixed rate method or detailed method to calculate their home office expense deduction for 2020. Where the detailed method is chosen, the employee will need to obtain the TP-64.3-V, General Employment Conditions, from their employer. This is Quebec’s version of the federal Form T2200. RQ will provide a new TP-59.S-V, Expenses Related to Working Remotely Because of the COVID-19 Pandemic, for employees to use to make their home office expense deduction claim to be filed with their tax return. This new form will be Quebec’s version of the new simplified federal Form T777S and will be available sometime in January 2021.

A note to employers

Many employees may want claim a home office expense deduction using the detailed method and will therefore need a signed T2200S or T2200 and the TP-64.3-V for Quebec purposes where applicable. Employers will need to determine whether the forms will be provided upon request or whether they will be completed for all their employees who worked from home due to COVID-19. The good news is that the new T2200S is much simpler to complete than the traditional T2200. Employers only need to confirm that the employee worked at home due to COVID-19, whether they were reimbursed for home office expenses and confirm if any reimbursement amount has been included in their T4 slip. For Quebec purposes, although it seems that RQ will not be providing a separate, simplified TP-64.3-V, the existing form has been updated so that only certain questions need to be answered for employees who worked from home because of the pandemic. Employers should know that the CRA and RQ will accept electronic signatures this year.

If you have any questions on the home office expenses, contact your local BDO office today.


The information in this publication is current as of December 18, 2020.

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.

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