Simpler tax rules for home office deductions
A temporary flat rate method will let employees claim as much as $400 without having to provide receipts or a form from their employer.
You could hear the collective sigh of relief when the federal government announced, in its 2020 Fall Economic Statement on November 30, that it would make it easier for employees to deduct working from home expenses. A few weeks later, the Canada Revenue Agency (CRA) released comprehensive guidelines and detailed answers to frequently asked questions that should help both employers and employees adjust to the fiscal realities of remote work.
Employees have two new options to claim a home office expense deduction if they are working from home due to the pandemic, says Heather DiGregorio, who leads the Tax & Benefits Business Unit at Burnet, Duckworth & Palmer LLP. “The method by which they deduct [expenses] is significantly simplified,” making it easier for them to qualify, she adds.
“To be eligible for the temporary flat rate method,” explains Lindsay McLeod of Blake, Cassels & Grayson LLP in a comprehensive post on the subject, “an employee must have worked from home due to COVID-19 more than 50 per cent of the time for a period of at least four consecutive weeks in 2020.”
Eligible employees “can deduct $2 per day that they worked from home (up to a maximum of $400) by filing a simplified Form T777S (Statement of Employment Expenses for Working at Home Due to COVID-19) with their tax returns,” says Aida Kimiagar, a tax lawyer with Goodmans LLP. “Additionally, under the flat rate method, employees do not need to keep supporting documents for their expenses.”
Employees should, however, keep detailed records of communication from their employer, either directing them or giving them the option to work from home, as well as the days they did work from home, in case they are audited, advised DiGregorio.
The deduction is not only applicable to those who were forced to work from home because of the pandemic. “Employees who chose to work from home when given the option are still eligible for the temporary flat rate method,” writes McLeod, adding that days off, vacation days, sick leave and other leaves of absence don’t count.
And those who were already working from home before COVID-19 do not benefit from the simpler process, says Kimiagar. These employees will continue using the previous method, with Forms T2200 and T777, she adds.
For employees who incurred more than $400 in home office expenses in 2020, there is another option, the “simplified detailed method.” This requires employers to certify their employees are eligible by providing them with the new Form T2200S. “This is a short version of the old T2200 form, and it relates solely to home office expenses,” DiGregorio explains. “The CRA has provided a worksheet to assist employees in determining their eligible home office expenses. Notably, reasonable home internet access fees are now an eligible expense.”
The catch? You’ll need your receipts if you are using the simplified detailed method, “and the expense must have been used directly in the employee’s work during the period,” explains Kimiagar.
New measures here to stay?
According to an Angus Reid poll, two-thirds of Canadians working from home expect to continue doing so after the pandemic. Will the CRA need to make the 2020 rules permanent?
“Looking ahead to 2021,” DiGregorio says, “the CRA has not indicated whether either or both of the new simplified methods will continue to be available.” She adds it may take time to decide the question, but we shouldn’t be too surprised if the new measures are extended. “A flat rate method will allow the CRA to audit based on one criterion — number of days spent working from home — as opposed to reviewing and analyzing detailed expense breakdowns relating to people’s home expenses.”
It’s hard to say for sure what the future entails, but lawyers who advise employers “can provide the government of Canada link to their clients in order to determine if their employees will be eligible for the flat rate method or detailed method of deducting home office expenses,” says Kimiaga.