Home Office Deductions for Employees Amid The Pandemic
Amid the COVID-19 pandemic, many employers and employees alike have changed the way they do business. As a result, the CRA has new guidelines and thresholds for claiming home office expenses covered by an employer on employee T4’s and new calculation methods for employees to deduct home office expenses. Here at McNabb Lucuk LLP, we can help you understand these changes and how they affect your reporting and taxes.
Home Office Reimbursements
Canadian employees who worked from home due to the pandemic may receive up to $500 in tax-free reimbursements from their employers for costs associated with transitioning their work from the office to home. This benefit program is specifically for the purchase of home office equipment, including computers, desks, and chairs. Any amount received by an employee over the $500 threshold is considered a taxable benefit and must be included as part of the employee’s income on their 2020 T4.
Home Office Deductions
In further recognition that many Canadians are now working from home, the CRA has implemented new programs for employees to claim certain home office expenses on their 2020 taxes. A new, simplified process is designed to make it easier to understand the requirements, eligible expenses and to calculate the deduction amount.
If your business had staff who worked from home due to COVID-19, they may be eligible to claim a portion of their home office expenses in 2020 using the new Temporary Flat Rate Method or the Detailed Method.
Temporary Flat Rate Method
The Temporary Flat Rate Method is a simplified calculation for an employee to claim home office expenses on their personal income taxes. The CRA has outlined an allowance of $2 per day, for up to 200 days, for persons working from home a minimum of 50% of the time for at least four consecutive weeks in 2020. The maximum deduction using this method would be $400 but individuals are not required to track expenses or provide an employer-certified T2200 form. It is important they calculate only paid, regular work days if claiming this deduction as non-workdays, such as vacation, sick, or family care days, are not eligible.
The Detailed Method for claiming home office expenses offers employees who incurred significantly higher expenses a potentially higher deduction. To qualify for this deduction, employees must have worked from their own home as a result of COVID-19 for more than 50% of the time, over a period of at least four consecutive weeks in 2020.
If an employee chooses to file under the Detailed Method, the employer must provide them with a signed T2200S form, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or the T2200. The T2200S form is a new, shortened version of the T2200 intended only for the 2020 tax year. Employees need to track all eligible expenses used directly for their work and should keep detailed receipts or service statements to support the deduction. These costs may include a portion of electricity, heat, water, internet, and rent. Eligible expenses for this deduction vary between salaried and commissioned employees, with the latter being permitted to claim partial property taxes and home insurance costs.
Be sure to speak with an accountant if you have any questions about eligible expenses and calculation methods for home office deductions on your business or personal tax returns.