Question. Like many other people, I am now working from home due to the lockdown. I’m wondering, can I now claim home office expenses as a tax deduction? Also, my employer gave me some money to buy things such as a new webcam for our virtual team meetings, so I can work from home properly. Is this a taxable benefit for me?
Answer. Millions of Canadians are now in a similar situation – previously unaccustomed to working from home, but have been forced to do exactly that, due to the COVID-19 pandemic and lockdown. Not surprisingly, many are now wondering about potential tax consequences of operating from a home office. In particular, let’s explore these key concerns:
- If you are now required to work from home, can you deduct home office expenses incurred during the pandemic?
- If your employer gave you a technology allowance, or reimbursed you for buying new equipment required to work from home, do you have to declare this amount as a taxable benefit?
First and foremost, there is lot of grey area around these questions right now, and we are waiting for CRA to clarify the rules. As such, the material presented here should be interpreted as generic and informational in tone, and not specific tax advice. You should consult an accountant or tax specialist for advice and guidance on your own personal situation.
Deducting Home Expenses – General Criteria
According to the Government of Canada, if you use a portion of your home as your work space, you are permitted to deduct certain expenses, provided at least one of the following conditions are met:
- The work space is where you mainly (more than 50% of the time) do your work;
- You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.
Already, the meanings of those statements are ambiguous and open to interpretation. For the first point, does 50% mean half the year? Or if you work from home more than 50% of the time, but only for 3 or 4 months during the pandemic, would that qualify? The CRA has yet to clarify.
For the second point regarding meeting clients, do phone calls and videoconferences qualify as “meeting clients”? In the past, CRA has said no, and that meetings must be face to face. However, given the current restrictions regarding social distancing guidelines, we are awaiting further clarification as to what qualifies as “meeting clients”.
Also, note that, in order to be allowed to deduct your expenses, you must be “required by the contract of employment” to maintain a home office. Further, that requirement must be certified by your employer on Form T2200 – Declaration of Conditions of Employment.
The T2200 must be completed and signed by your employer, and although it is not required to be filed with your tax return, you must keep a copy in case the CRA requests to see it. However, it is expected that this process will also be streamlined, as millions of employees requesting T2200 forms would put a tremendous strain on employers.
Which Expenses Can You Deduct?
Depending on the nature of your employment, different types of expenses may be deductible. That is, eligible expenses vary, depending on whether you are self-employed, a salary-based employee, or a commission-based salesperson. The following chart summarizes deductible expenses as follows:
|Salaried Employee||Commissioned Sales||Self Employed|
|Rent (if property not owned)||✓||✓||✓|
* Utilities, electricity, heat, minor repairs, etc.
**Capital expenses would include items such as a new desk, computer, etc.
The first thing we should clarify here is that, even if you are eligible to deduct expenses, it’s only a portion of those eligible expense that can be deducted from your income. How can you determine that portion?
The most common means of calculating is on a pro-rata basis according to floor space in your house. In other words, the portion of your home used for your home office compared to the total square footage of your house. For example, if your home office is 350 sq. ft., and your house is 1,400 sq. ft. in total, then your home office is 25% of your house, calculated as 350 ÷ 1,400 = 25%. In this case, 25% of your eligible expenses would deductible.
So, for example, if you were a salaried employee who could deduct your home heating expenses, and your home office was 25% of your home, you wouldn’t be able to deduct the entire cost of heating your home, but rather, you could deduct 25% of this expense.
Taxable Benefits – Allowances and Reimbursements
To support employees in working from home more efficiently, some employers have reimbursed their employees for the purchase of additional technology and computing equipment, or provided them with an allowance to purchase such equipment.
Both reimbursements and allowances for purchasing home office equipment are generally treated as taxable benefits. A taxable benefit is any type of payment from an employer to an employee, and can be in the form of cash or other type of payment. For example, if your employer reimbursed you for purchasing $200 of videoconferencing equipment, you would typically be required to pay tax on that $200 just the same as if you had received it as regular income.
However, it appears the CRA is making an exception due to the COVID-19 pandemic. On April 22nd, the CRA released technical interpretation 2020-0845431C6 (French Only), indicating that for a reimbursement of an amount not exceeding $500 for the purchase of personal computing equipment, no taxable benefit will arise.
Working From Home: Bottom Line
Will the Government of Canada and the CRA come up with new tax guidelines, new requirements, new rules, and new interpretations due to coronavirus? Quite possibly. Indeed, it seems every day there are new announcements with new information regularly becoming available.
With that in mind, the best thing we can do at this point is to try and stay informed and up to date, and make sure you keep your receipts for any expenses incurred. At this point, it would be unwise to assume you’ll be entitled to tax deductions just because you’re currently working from home. That may end up being the case for some people, but definitely not for all, which is why you should always seek the advice of a tax specialist for your own personal situation.
In the meantime, if you have any questions about your financial plans or your investment portfolio, please contact us to have a discussion with a Portfolio Manager or Certified Financial Planner.