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covid19financial tips Feb 04, 2021

Tax Deduction for Canadian Employees Working from Home during Covid-19

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Tax Deduction for Canadian Employees Working from Home during Covid-19

*Note: This article is for informational purposes only; for any further clarifications, you should consult your accountant, lawyer, or tax professional.

Covid-19 has brought unique challenges from many perspectives and has changed how we handle our daily routine. One significant change was that many Canadians are now working from home, which also means additional expenses.

To help employees with those extra work-related costs, the Canada Revenue Agency has taken measures to provide tax deductions for people that worked from home.

The Challenging Background

The pandemic affected economies and individuals at a global level, and Canada is no exception. Employers were forced to have people work from home, where their activity allowed it, and in many cases, it turned out to be a solution they are considering in the long run.

Indeed, the peak in working from home happened during the lockdown. According to Statistics Canada, about 4.7 million Canadians worked from their homes during the week of March 22 to 28. Those were just employees that usually didn't work remotely; if we also add the ones who usually handled their work from home, we get a total of 6.8 million people.

Since many of these employees continued to work from their home either full-time or partially, the need for a more efficient way of reimbursing those expenses became evident.

CRA came to employee's assistance by providing a quick recuperating home office expenses by deducting them on their personal income tax return for the 2020 tax year. They can now opt for a flat rate method helping them deduct $2 for every day they worked at home in 2020, up to a total of $400. Those with higher expenses, who opt for the detailed method, can now use simplified forms and a calculator to determine the exact costs.

What Were the Former Rules?

Previously existing CRA rules stated that an employee was entitled to deduct home office expenses using their personal income tax return if they met the following conditions:

• They had to pay for those expenses because their contract of employment required it.

• One of these two requirements was met:

• The employee handled their work in that home office more than 50% of the time.

• They used that workspace to continuously earn employment income when they needed to meet clients or other people interested in their work activity.

They needed a T2200 form, Declaration of Conditions of Employment, issued and signed by the employer. Given the restrictions imposed by the pandemic, it became apparent that some of these conditions couldn't be met anymore. Employees needed to avoid contact with clients and even the employer, so changes required to be made.

What Advantages Does the Temporary Method Bring?

Overall, the CRA's temporary method means a relaxation of the entire process and adapting to the current background. The main advantage is that employees working from home can now choose a flat-rate deduction for 2020 instead of turning to the detailed calculation.

Since the flat rate isn't a good option for all employees, CRA has also simplified the detailed method. In this case, the changes aren't related to the calculation methods but to the eligibility and general rules.

Since we mentioned the previously existing eligibility rules, let's take a look at the updated ones. Here are the criteria you must meet to claim working from home expenses for 2020:

• You worked from home in 2020 due to Covid-19 or because your employer demanded it.

• The period you worked from home is higher than 50%, or at least four consecutive weeks in 2020.

• You have filled in and signed Form T2200S or Form T2200 that your employer has provided (only if you use the detailed method).

• You are only claiming expenses that you used directly for your work.

Reducing the qualifying period is the main advantage, as it allows a considerably greater number of employees to benefit from these tax deductions. Now let's see what enhancements you can expect from each method.

The Flat Rate Method

The flat rate method is the easiest way to claim tax deductions for home office expenses because of the Covid-19 pandemic. You can demand $2 for each working day, up to a maximum of 200 working days, which means $400.

One of the advantages is that eligibility is connected to the employee, not the home-office location. That means that if two or more family members use the same home as a temporary working space, they can claim the tax deduction.

The flat rate method means you no longer need to do the calculations according to the previous criteria, like your home workspace's size. You also don't have to keep supporting documents to justify those expenses. As for your employer, they no longer need to fill in and sign Form T2200S or Form T2200.

The table below will explain what counts as a workday, as far as the flat rate method is concerned:

What you can count

What you cannot count

  • Days of full-time work from home
  • Days of part-time work from home
  • Days off
  • Vacation days
  • Sick leave days
  • Other absences

The Detailed Method

The detailed method is the preferred option if you need to claim the actual amounts you paid for work-related expenses while working from home. The calculation method will be the same; you will have to take the following aspects into account:

• The size of your office space and home?

• The type of workspace?

• How many hours did you use that space for work every week?

There are two advantages you can benefit from for the tax year 2020. The first one is that CRA will accept electronic signatures on forms T2200S and T2200, so you won't need to meet with your employer in person. The second advantage is that CRA expanded the list of eligible expenses. You can check the list online, but one of the essential additions is that you can now include home internet costs within reasonable limits.

It's important to know that there are a few differences between commissioned and salaried employees regarding the detailed method. Here is what each category can claim:

All salaried employees (including commissioned) can claim

Commission employees – additional claims

  • Electricity
  • Heat
  • Water
  • Utilities portion of condominium fees
  • Internet fees
  • Minor repairs and maintenance
  • Rent
  • Home insurance
  • Property taxes
  • Lease of a: cell phone, laptop/tablet, fax machine related to the work activity
  • There are also expenses that you may be tempted to include but are non-eligible, like mortgage, the pieces of furniture you use in your workspace, or capital expenses. As a general rule, eligible expenses must be directly related to your work; supplies like paper or ink are the best example in this sense.

    If you aren't sure how to calculate your working from home expenses, try the CRA calculator. You will see that it calculates all costs, even the percentage of the internet fees you can claim, according to your situation.

    Which Method Is Better?

    Taxes are best calculated based on each person's specific situation, and these deductions are no exception. To help you decide which method is better for you, here are a few essential questions you should answer before deciding:

    • Are you a home-owner, or are you renting? If you rent your home, you will probably find you can include more expenses using the detailed method. If you work from the house you own, the flat rate method may be preferable. Indeed, $2 per day doesn't sound like much, but it can usually cover utilities and the internet connection fee.

    • Do you qualify for both? You need to carefully check your eligibility because you may only be eligible for one of the methods. Suppose you also want to claim car expenses. In that case, the detailed method is your only option.

    • Which option is more manageable and costs less? The flat rate method is the answer in both cases. If you hire someone to handle your tax return, the detailed method will take more time and effort, reflecting in their bill.

    Key Takeaways

    • You can only claim the expenses related to working from home as tax deductions; you won't receive a refund.

    • The methods we discussed can only be used for the 2020 tax year.

    • If in 2020, due to the pandemic, you worked from home at least 50% of the time or for four consecutive weeks, you can benefit from tax deduction benefits.

    • The flat rate method can give you $2 per day, up to $400, for eligible expenses like utilities and internet.

    • The detailed method covers several other types of expenses, like rent and minor repairs.

    • The process is more straightforward even with the detailed method because electronic signatures are allowed, and the list of accepted expenses was expanded.

    • You can only claim expenses for the days you worked from home, and those costs need to be directly connected to your work activity.

    • You will find everything you need online, from the calculator you can use to determine the amounts to the T2200S and T2200 forms you need to fill in.

    Working from home was, for many of us, an unexpected development we were forced to accept. Given the massive impact that the pandemic continues to have on individuals and economies alike, it doesn't seem like such a sacrifice. Many Canadians will probably continue to work from home, at least part-time, for a while now.

    Companies are starting to rethink their long-term strategy and to include this type of employment to a greater extent. The fact that authorities are also doing their part and offer benefits like these tax deductions we talked about is a positive aspect both for employers and employees. It remains to be seen how this CRA initiative will continue in 2021 and even further.

    Even so, challenges are bound to continue during the following period, including financial ones. Luckily, if you need money urgently, you have an easy way of handling your financial situation. You can get a loan from a dependable money lender like iCASH and have the money sent to you via e-Transfer in no time.

    An online loan could be your best option, as it is easy to apply for and get approved instantly. Most importantly, the requirements are flexible. Even if this difficult period has lowered your credit score, you can still qualify. It's encouraging to know that even with all the strains that this pandemic keeps throwing at us, there are still good options available.