Employees working from home is not a new phenomenon, but with COVID-19, it has become less of a perk and more of a necessity.
In response, the government has introduced a simplified process for claiming home office expenses. But before we get to that, let’s look at the home office deduction that was claimed in past years.
How Home Office Expenses Are Normally Claimed
In the past, employees working from home could claim a deduction for home-related expenses. And like any deduction there were certain conditions and steps that needed to be taken.
To qualify, the workspace:
- Had to be where the individual did more than 50% of their work throughout the year.
- Could only be used to earn employment income.
- Must be used on a regular basis for meeting with clients, customers and other people related to their employment.
After that, the employee would have to collect all of their eligible bills and determine what portion of these home expenses could be attributed to their workspace. Expenses included:
- Electricity
- Heating
- Home maintenance
- Property taxes (commission employees only)
- Home insurance (commission employees only)
The proportion of costs claimed would be based on the square footage of the workspace as a percentage of the whole home. i.e. if your home office is 200 sq feet and your house is 2,000 sq ft, you could claim 10% of your costs (200 / 2,000 x 100).
In addition, the employee would have to have a T2200 completed by their employer. This form would certify that you, the employee, were required to work from home and indicate the percent of duties performed there. The employer would also have to state whether there was a reimbursement for any of the expenses.
All of this meant that there was a lot of paperwork involved. And that’s a lot of unexpected work for all the employees now working from home and their employers.
To help ease the burden and stress of learning the ins and outs of this credit, the federal government has introduced a temporary flat-rate method for home office expenses in 2020.
The 2020 Home Office Deduction
The federal government has introduced two alternative methods for claiming home office expenses in 2020 for employees working from home with modest expenses.
- Flat Rate Method
The government is allowing employees required to work from home for COVID-19 to claim home office expenses using a flat rate.
Under this method, you must have worked from home more than 50% of the time over 4 consecutive weeks in 2020. (This is substantially less than the regular credit, which requires you to work from home more than 50% of the time for the entire year.)
If you meet this criterion, which many Canadians do, then you can claim this expense.
Using the simplified method you won’t have to pull together all your bills for eligible expenses or calculate the portion of these expenses that were work related. Instead, you can simply claim $2 for each day you worked from home up to a maximum of 200 days (total deduction of $400).
If you claim your expenses using the flat rate method, you will not need to submit a T2200 or T2200s. But you also can’t claim any other employment expenses, such as motor vehicle expenses.
You can determine your eligibility for this method on the Canada Revenue Agency (CRA) website.
- Detailed Method
The government has also created a simplified version of the detailed method used in past years.
To be eligible:
- Your employer must have required you to work from home or given you the option to work from home and you chose to accept.
- You must have had to pay for expenses related to the workspace and used directly in work. (If your employer reimbursed you for some of the expenses, they will have to be excluded from your claim).
- Your workspace is where you worked for more than 50% of the time for at least 4 consecutive weeks.
Under this method, you will be claiming the employment portions of the actual expenses paid. As a result, you’ll still be required to support your claim with documentation, which means you’ll have to gather all your bills for all of your eligible expenses. The good news is that the list of eligible home office expenses has been expanded. Eligible expenses for 2020 include:
- Electricity
- Heating
- Water
- Utility portion of condo fees (see CRA website for details)
- Home internet access fees (does not include connection or lease fees)
- Home maintenance and minor repair costs related to workspace
- Rent paid for house or apartment (you can’t claim a rental value on the workspace and mortgage payments are not eligible)
- Property taxes (commission employees only)
- Home insurance (commission employees only)
- Lease on electronics (commission employees only)
In addition to gathering your receipts, you’ll also have to determine what portion of your home was used for employment purposes and which time periods you worked from home. For example, you can’t claim home office expenses for the months preceding COVID or for any time that you were back at work, working full time.
If you use the detailed method, you can also claim additional expenses if you're required to pay for office supplies and certain phone expenses. These include items like:
- Envelopes
- Folders
- Highlighters
- Ink Cartridges
- Notebooks
- Paper clips
- Basic cell phone service plan
- Long distance work calls
- And more
You can find the full list on the CRA website.
NOTE: These expenses can’t be claimed under the flat rate method.
Finally, a T2200 or T2200S must be completed and signed by your employer. You also need to complete a T777 (or a simplified version of this form called T777S).
For more information on these credits or for help claiming them, contact our team today.
