In 2022, many employees continued to work from home for pandemic-related reasons. Are your staff members ready to claim home office expenses on your tax return?
Heading into 2023, many have settled into this new way of working, with an increasing number of employers now allowing their teams to work from home for at least part of the week.
There are a number of reasons employers are normalizing remote work and hybrid work weeks.
Increased Productivity: Studies have shown that employees who work from home tend to be more productive, with fewer distractions and interruptions than they would have in a traditional office setting.
- Improved Work-Life Balance: By allowing employees to work from home, they are better able to balance their personal and professional responsibilities, which can lead to reduced stress and increased job satisfaction.
- Cost Savings: Allowing employees to work from home can help companies save on costs associated with office space, utilities, and other expenses.
- Increased Employee Retention: Offering remote work options can help companies retain valuable employees who might otherwise leave for more flexible opportunities.
- Expanded Talent Pool: By allowing remote work, companies can expand their talent pool to include individuals who live outside of their immediate geographic area.
- Environmental Benefits: With fewer employees commuting to and from the office, there is a reduction in carbon emissions and traffic congestion, which can benefit the environment.
What Does Remote Work Have to Do With Annual Tax Returns?
During the pandemic, the Canada Revenue Agency (CRA) relaxed its rules for claiming deductions on home office expenses, which still apply for 2022. But, heading into 2023, there are some changes you need to be aware of.
Before we talk about planning for 2023, let’s review employee options for claiming home office expenses in 2022.
Claiming Home Office Expenses in 2022
As an employer, it’s a good idea to know about the potential tax credits and deductions your employees can claim. By sharing information about these tax planning mechanisms with your staff, you can help create a positive work environment and show your employees you care about their well being. And you can do it without costing your business additional money.
When claiming home office expenses, your employees can choose between two methods: the flat rate method or the detailed method.
Flat Rate Method
The flat rate method is simple and easy to use, but may not produce the most beneficial tax result.
To use this method, your employee must have worked from home for more than 50% of the time for at least four consecutive weeks during 2022 as a consequence of the pandemic. The expenses claimed must also be directly related to their work, and you must not have fully reimbursed your employee for these expenses.
The maximum deduction which can be claimed for the 2022 tax year using the flat rate method is just $500. The taxpayer can claim $2 for each day they worked from home during the qualifying period and $2 per day for any additional days of working from home during the year.
Detailed Method
The detailed method requires a bit more work but can potentially lead to a larger tax deduction.
To claim a home office expense deduction using the detailed method, your employee must have worked from home for at least 50% of the time, during at least four consecutive weeks during 2022 as a consequence of the pandemic. As the employer, you must also provide a signed T2200 or T2200S, certifying the work from home arrangement and the fact that the employee pays for the expenses they’re claiming.
In addition to the above requirements, your employee must keep all documents supporting their claim for work-from-home expenses.
Once these criteria are met, the employee can claim several different costs related to their workspace, such as:
- Rent
- Property tax
- Utilities
- Home maintenance and minor repairs
- Internet access fees
- Office supplies
- And more
The employee must determine the percentage of those expenses which can be deducted as home office expenses based on the square footage of their workspace as a percentage of the overall square footage of their home.
Should Your Employees Choose The Flat Rate or Detailed Method?
While the flat rate method is simpler, taxpayers who worked from home for an extended period of time and who are willing to make the effort to retain and organize records for home office expenses and to calculate the available deduction, will likely be rewarded with a better tax result using the detailed method.
Planning For 2023
The rules for claiming home office expenses will be changing in 2023.
Because the pandemic is no longer affecting workplaces the way it was, the government has decided to return to pre-COVID rules for claiming home office expenses. This means that employees will still be able to claim home office expenses, but they will no longer be able to use the simplified flat rate method. Only the detailed method will be available. As a result, employees will need to retain all of their home office expense receipts.
In addition, the eligibility criteria will be more stringent:
- As the employer, you required your employee to work from home during the year .
- Your employee performed their work from their home office more than 50% of the time.
- The home office was only used to earn employment income.
- The home office was used on a regular and continuous basis for meeting clients, customers, or other people as part of their employment duties.
As a result, not as many employees who work from home will be able to claim their home office expenses.
In addition, all employees who work from home and are claiming expenses will have to have a completed T2200. There will no longer be an option to fill out a T2200S.
When in doubt about whether they will be eligible, employees should keep all receipts related to potential home office expenses. While they may learn that they are no longer eligible to claim the deduction come the 2023 tax filing season, if it turns out they are eligible and they don’t keep their receipts, they will not be able to claim the associated expenses.
For more information on claiming home office expenses in 2022 and 2023, contact us today.
