Employees who have incurred expenses in the performance of their employment which are not reimbursed by an employer have the ability, in some circumstances, to deduct their home office expenses from income when filing their annual tax returns.
In 2020, a significant number of employees were requested or required to work from home for the first time in order to maintain social distancing during the COVID-19 pandemic. Many employees have had to set up home offices for the first time, and may find themselves with new expenses related to working from home.
As a result, the Canada Revenue Agency (CRA) has recently announced a new simplified procedure for employees to determine their eligibility for and to claim their work from home expenses on their 2020 income tax returns.
***Please note that this blog is not legal advice and employees should seek individualized advice from their accountant or a tax specialist before filing a return about their particular situation and expenses.
How do employees normally claim work from home expenses?
Normally, the CRA requires that an employer complete a form called a “T2200”, which sets out the expenses that can be deducted by the employee. The employer does not have to approve or agree with the expenses, but must complete the T2200 for an employee to deduct the expenses.
However, due to the very large number of people working from home in 2020, the CRA created an alternative simplified method for eligible employees that allows them to deduct work from home expenses, up to a set maximum, without a completed T2200 form. The CRA also created a more simplified T2200 form for employees who want to claim more than the set maximum and/or have other employment expenses (such as travel expenses) they want to claim.
What are my options for claiming work from home expenses on my 2020 income tax return?
Employees who worked from home in 2020 can claim their work from home expenses in one of two ways:
- the temporary flat rate method, or
- the normal method using a T2200 form (also referred to as the “detailed method”).
Under the temporary flat rate method, eligible employees can claim a set amount per day they worked from home ($2), up to a set maximum ($400). This amount may be deducted from income on an employees’ tax return.
Under the detailed method using a T2200 form, eligible employees can claim all eligible employment expenses, which may be more than $400. The CRA has created an interactive calculator to help employees calculate their eligible expenses for the 2020 tax year.
Employees cannot claim other employment expenses (such as travel/motor vehicle expenses) under the temporary flat rate method. Therefore, if you have other employment expenses you want to claim, you may want to consider whether using the detailed method with a T2200 would better maximize your employment expense claim.
1. Temporary flat rate method
Am I eligible to make a claim for home office expenses under the temporary flat rate method?
Under the temporary flat rate method, you are eligible to claim a deduction for home office expenses for every day that you worked from home method if you meet all of the following criteria:
- you worked from home in 2020 due to the COVID-19 pandemic (whether your employer required you to work from home or gave you the choice to work at home);
- you worked more than 50% of your working time from home for a period of at least four consecutive weeks in 2020;
- you are only claiming home office expenses and are not claiming any other employment expenses; and
- your employer did not reimburse you for all of your home office expenses.
Under this method, your employer does not need to complete and sign a form T2200.
What home office expenses can I claim under the temporary flat rate method?
You do not have to indicate or provide documentation to identify which home office expenses you are claiming under the temporary flat rate method. This method is meant to provide for a simplified procedure to claim expenses relating to your work space in your home, office supplies, and phone expenses.
How much can I claim for home office expenses under the temporary flat rate method?
If you meet the criteria, you can claim $2 per day working day that you worked either full-time or part-time hours from home in 2020, up to a maximum of $400 (i.e. 200 working days). Multiple people working from the same home can each make a claim for the same days.
Days off, vacation days, sick leave days, or days where you were on another type of leave of absence do not qualify as working days for this calculation.
How do I make a claim for home office expenses under the temporary flat rate method?
Fill out the Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19 and fill out the appropriate amounts from that form into your 2020 income tax return as directed.
What documentation do I need to claim work from home expenses under the temporary flat rate method?
Aside from the Form T777S, you do not need to keep any documents to support your claim under the temporary flat rate method.
What if my employer reimbursed me some or all of my work from home expenses?
If your employer reimbursed you for some but not all of your home office expenses, you can still use the temporary flat rate method if you meet the other eligibility criteria.
If your employer reimbursed you for all of your home office expenses then you cannot make a claim for your home office expenses.
2. Detailed method using T2200
Am I eligible to make a claim for home office expenses under the detailed method?
You are eligible to claim a deduction for home office expenses for the period you worked from home if you meet all of the following criteria:
- you worked from home in 2020 due to the COVID-19 pandemic or your employer required you to work from home;
- you were required to pay for expenses related to the work space in your home;
- your work space in the home is either:
(a) where you mainly (more than 50% of the time) work for a period of at least four consecutive weeks in 2020 or
(b) only used for you to earn employment income and you use it regularly and continually for meeting clients, customers, or other people while doing your work;
- you are claiming expenses which were used directly in your work; and
- you have a completed and signed Form T2200S or Form T2200 from your employer.
What home office expenses can I claim under the detailed method?
There are two types of expenses relating to your work from home arrangement that you can claim under the detailed method: (1) expenses relating to the materials you need to work from home (“supplies”) and (2) expenses relating to the cost of having and maintaining the physical space where you work (“workspace-in-the-home”).
Supplies: for the 2020 tax year, the CRA has created a comprehensive and searchable list of common home office supplies and indicates whether or not those supplies can be claimed for deductions on your income tax return.
Workspace-in-the-home: under this heading, you can claim costs associated with electricity, heat, water (or the utilities portion of your condominium fees), home internet access fees, maintenance and minor repair costs, and rent paid for a house or apartment where you live. If you are a commission employee, you can also claim costs associated with home insurance, property taxes, and lease of a device (e.g. cell phone, computer, fax machine) that reasonably relates to earning commission income.
You can only claim expenses that were actually used for work. For workspace-in-the-home expenses, this means you can only claim a portion of the expenses which based on the portion of your home used for work and the percentage of time that space is used for work. The CRA has provided a step-by-step breakdown of how to do these calculations.
Remember, you can only claim work expenses that you were required to pay for. You cannot claim expenses that your employer paid for, either directly or through an allowance or reimbursement.
How do I make a claim for home office expenses under the detailed method?
First, ask your employer to complete Form T2200S or Form T2200.
Then, you will fill out Form T777S, which includes a calculator to help you claim the home office expense deduction that you are entitled to.
What documentation do I need to claim work from home expenses under the detailed method?
You need a Form T2200S or Form T2200 completed and signed by your employer. These forms confirm you worked from home and that you were required to cover your own expenses. Form T2200S is only available for the 2020 tax year and is a simplified version of Form T2200.
For your 2020 tax return, your employer can sign the Form T2200S or Form T2200 electronically.
You should also keep all receipts and invoices related to any work from home expenses that you are claiming in case you are audited.
What if my employer reimbursed me some or all of my work from home expenses?
If your employer has reimbursed you for some of your work from home expenses, you can still use the detailed method if you meet the eligibility criteria but you cannot claim any expenses that were or will be reimbursed by your employer.