Are you curious as to what you can claim for your work-from-home office during the COVID-19 pandemic?
According to Statistics Canada, almost five million workers had shifted to working at home by late March 2020, due to the coronavirus pandemic. Although some people did go back to the office by the summer, millions of people continue to work remotely. If you are one of those people and/or if you employ anyone who continues to work from home, read on to find out what you can and can’t claim on your 2020 income tax returns. Unfortunately, anyone who was already working from a home office when the pandemic started, or is self-employed, will be expected to handle their work-from-home expenses the regular way.
Simplified Home Office Expense Deduction
If you’re not used to working from home, you may not know that Canadians can already deduct home office expenses come tax time. Employees working from home more than 50% of the time are eligible to deduct part of the costs related to their workspace — like electricity, heating, supplies, and maintenance — as work-space-in-the-home expenses.
Current rules allow employees to claim a portion of their housing expenses if they calculate their work space area relative to the rest of their home and then deduct that percentage of the rent.
An employer must require the use of a home office as part of the employment contract and then complete and sign the T2200: Declaration of Conditions of Employment form come tax time. Now, with so many people suddenly working from kitchen tables and guest rooms this year due to COVID-19, the federal government has simplified the process.
On November 30th, Deputy Prime Minister and Minister of Finance Chrystia Freeland delivered the Government of Canada’s Fall Economic Statement 2020 ‘Supporting Canadians and Fighting COVID-19’. In addition to emphasizing continued emergency relief measures, it also includes tax-related news. The Canada Revenue Agency (CRA) is granting a simplified home office expense deduction by allowing employees working from home to claim up to $400 in “modest expenses.”
That $400 is expected to be a per diem amount (for the number of days working from home) for home expenses on your 2020 income tax return. So rather than figuring out expenses and how many square feet your home office takes up, the government will let you write off up to $400. You don’t have to keep any receipts and detailed tracking is not required.
Tax deductions lower your taxable income, so the federal government’s decision to make the new home office tax break a deduction means you could see at least some savings on both your federal and provincial taxes. You can’t deduct mortgage interest, property taxes or home insurance. Apparently, taxpayers will still be able to claim under the existing rules if they want to, so if you rent your home, you can deduct a percentage of the rent. The Government of Canada’s website states that, “you can only deduct work space expenses from the income to which the expenses relate and not from any other income…If you cannot deduct all your work space expenses in the year, you can carry forward the expenses.” The web pages will be updated soon to reflect any changes.
In the early days of the pandemic, the Canada Revenue Agency allowed employers to reimburse an employee up to $500 for “personal computer equipment” so they could work at home. Recently, the tax agency added home office furniture, such as desks and chairs, to the list of expenses employers can reimburse tax-free. If you sent employees home to work in March 2020 and they were still working from home during the Fall, they have worked at least half the year at home which qualifies them for the deduction. The CRA made clear that the maximum tax-free reimbursement is for each employee, not for each piece of office equipment.
The ‘Before’ rules called for anyone claiming the deduction to get their employer to fill out a T2200 form certifying that working from home was a condition of employment, and that without that form the claim would be rejected. But, this year you won’t have to sign a T2200 form for each employee you reimburse for up to $500 worth of expenses. According to the federal government’s Fall Economic Statement 2020, “…the claim process imposes an administrative burden on employers who are already dealing with the broader impacts of the pandemic and have to fill out additional information for their employees who qualify.”
The rate for the Canada Emergency Wage Subsidy, now the largest component of the federal government’s pandemic response, is expected to be brought back up to 75 per cent of employee wages for eligible businesses, up from the current maximum rate of 65 per cent. This additional support is because of “the ferocity of the second wave and its expected economic impact.” This proposed CEWS increase would kick in on December 20th and extend until March 13th, 2021.
At a press conference on Friday, December 4th, Prime Minister Justin Trudeau said that eligible businesses will now be able to obtain a second loan under The Canada Emergency Business Account (CEBA) if they need additional support. Originally a partially forgivable loan up to $40,000, the government has proposed expanding this by up to $20,000. The deadline for applying has been extended to March 31. Of the newly announced financing, $10,000 will be forgivable if repaid by the end of 2022. The hope is for these measures to protect jobs and ensure that small businesses don’t have to close their doors.
Keep Those Receipts
Although the CRA has added home office equipment to the list of expenses that employees can be reimbursed tax-free, we highly recommend keeping any and all documentation for these expenses in case changes are made to the tax code in regards to COVID-19 or in case of a future CRA review or tax audit. We should see a fuller picture on how the new rules will fit with the existing tax system in a couple of months. If you have any questions about home office deductions, the proposed CEWS increase or the expanded CEBA loans, contact us for guidance through this confusing period, we’re here to help.