The outbreak of COVID-19 has caused several businesses to shut down, resulting in many employees working from home to the extent that their work can be performed remotely. Many employees now work out of home offices, can they deduct office expenses for the remote work performed?
Reimbursement of Equipment for Teleworking up to $500
Recently the Canada Revenue Agency (CRA) stated that in the context of COVID-19, it is prepared to accept that reimbursements of up to $500 to equip employees to telework will not result in a taxable benefit for the employee.
To ensure that the amount is not a taxable benefit for the employee there should supporting documentation, the employer should reimburse the employee and the amount not exceeding $500 should be for all or part of the cost of acquiring personal computer equipment to enable the employee to immediately and properly perform the employee’s work. In this context the CRA will consider that the equipment is purchased for the benefit of the employer.
Am I eligible to deduct home office expenses due to COVID-19?
If you are an employee or a commissioned salesperson working from home due to COVID-19, you may be able to claim a deduction for home office expenses. The expenses must relate to using the workspace in your home and be required by your employer or employment contract. Additionally, under the Income Tax Act (Canada), one of the two following conditions must be met:
- The workspace is where you principally (more than 50% of the time) perform the duties of office or employment, or
- The workspace is used exclusively for the purpose of earning employment income and it is used on a regular and continuous basis to meet with customers or clients in the course of performing employment duties.
Principally would generally mean, for example, that an employee would be required to work 3 days from home to be able to deduct office expenses. However, in the case of the COVID-19 pandemic, a consideration of the specific circumstances of the remote work arrangement would be required. For example, you may satisfy this criterion if you work overtime hours that impact the 50% calculation. In terms of the second criterion, meeting with customers or clients generally means meeting face-to-face and not via online video calls, however, the CRA might change its approach given the new developments.
Specifically, what are deductible home office expenses?
If you are an employee, you can claim a portion of:
- Utilities (electricity, heating);
- Minor repairs;
- Supplies (stationery, stamps, toner, paper); and
- Basic cell phone service (when used directly in the performance of employment duties).
If you are a commissioned salesperson, in addition to the above, you can also claim a portion of your property taxes and insurance. Mortgage interest and capital cost allowance are not deductible for employees.
What if I bought office equipment to work from home?
In terms of office equipment, the costs of purchasing/leasing items such as desks, monitors, or office chairs are not deductible. Instead, your employer may choose to offer an allowance or reimbursement. Those amounts would be generally taxable employment benefits.
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. However, you can carry the excess to be deducted in future years if you are still working from home and qualify for said deductions in those years.
Finally, you cannot deduct home office expenses that have already been reimbursed by your employer.
What documentation needs to be filled out?
Your employer needs to sign Form T2200 Declaration of Conditions of Employment, which states that you were required to work from home. By signing the form, your employer is certifying that you meet the above conditions as outlined in the Act.
How soon should I contact my employer about Form T2200?
You should contact your employer as soon as possible so they can fill out the form in advance. You do not want to risk the possibility of them refusing to certify later due to any change in your relationship. When you approach your employer, you should provide supporting records of eligible home office expenses.
This article was written by Alexandra Monkhouse, Toronto Employment Lawyer at Monkhouse Law. Alexandra specializes in employment law, human rights law and disability insurance law.
For more information on this topic, visit the CRA website and CRA’s interpretation bulletin regarding Employee’s Expenses. Monkhouse Law is a boutique employment law firm in Toronto with a particular focus on workers’ issues. If we can help, give us a call. We offer a free 30-minute phone consultation.