Millions of Canadians made the shift to working from home in 2020 due to the COVID-19 pandemic. These workers may now qualify for new home office tax deductions announced by CRA for the 2020 tax year.
In November, Statistics Canada reported that 2.5 million Canadians who did not work from home pre-pandemic are still working from home.
To help cover home expenses, the CRA has provided 2 methods for employees working from home to claim their deductions. The first is a simple deduction of up to $400, no receipts or paperwork required. The second requires employers to fill out Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19.
Unsure of what route to take to best support your employees? Here are both options broken down, just in time for the upcoming tax season.
Option 1: Flat Rate Deduction of $400
The simplest option for employers and employees is claiming through the Temporary Flat Rate Method, where eligible employees can claim up to $400 in deductions without any receipts or employer sign-offs.
In this case, employers do not need to fill in a Form T2200S and employees do not need to tally expenses, keep receipts, or calculate the square footage of their home workspace.
Employees must meet all of the following eligibility requirements:
- You worked from home because of the pandemic in 2020
- You worked more than 50% of time from home for a period of at least four consecutive weeks in 2020
- You are only claiming home office expenses and no other work expenses
- You have not been reimbursed for all home office expenses by your employer
Through this method, eligible employees can claim $2 per day they worked from home, up to a maximum of $400. Days worked from home include this period plus all days (i.e. if you went back to your workplace for a short amount of time but then worked from home again – all work from home days are included).
If your employees have been working from home since the start of the pandemic, they should qualify for the full amount. Also, if a stipend was provided by the company to employees to cover work office items such as a desk or chair, employees are still eligible for this deduction.
Making the Claim & How to Calculate
There is a calculator available to easily determine the deduction. Employees would use this calculator and include the resulting amount on their tax return and Form T777S Statement of Employment Expenses for Working at Home Due to COVID-19.
Option 2: Detailed Method using Form T2200S
With the Form T2200S method, employees may be able to claim more than the $400 available in the simpler Temporary Flat Rate Method. The percentage of your workspace relative to your home, as well as the percentage of time the space is used for work, is taken into consideration for the calculation.
Employers are required to complete and sign off on Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19. This is an amendment of Form T2200, created specifically for this use. Form T2200s is shorter and easier to fill out. The form should be completed and signed alongside T4 slips for payroll year-end.
Employees are required to keep their T2200S (or T2200), as well as any receipts, supporting documents, and records for 6 years.
To qualify, employees must meet the following eligibility criteria:
- You worked from home in 2020 either because it was required or by choice, due to the COVID-19 pandemic
- You incurred expenses related to the workspace in your home
- Your workspace is where you mainly work (more than 50% of the time for at least 4 consecutive weeks) or you only use your workspace to earn employment income, also using it regularly for meetings
- Your expenses are used directly in your work
- You have a completed and signed copy of either the Form T2200S or Form T2200 from your employer
Before starting the claim process, the employee will need to gather documentation and receipts for their home office expenses. While going through the calculator, CRA has listed the types of expenses that can and cannot be claimed for the tax deduction. Here are some examples.
Included: The rule of thumb is that supplies must be “consumable” or used up. So items such as pens, notebooks, highlighters, envelopes, stamps, ink cartridges, printer paper, and sticky notes can be claimed.
Excluded: Generally speaking, capital or hardware costs cannot be claimed. This includes the purchase of office furniture, computer, printer, monitor, mouse, headset, lamps, heaters, and coffee supplies.
Additional allowable expenses include a portion of electricity, heat, home internet, rent, and maintenance costs. Mortgage payments are not included.
The portion that’s covered will depend on whether the workspace is in a dedicated area (i.e. converted spare room) or a common area space (i.e. dining table).
Making the Claim & How to Calculate
In order to make a claim with the Detailed Method, the employee will have to gather the following information:
- Total size of workspace in square feet or metres
- Total size of all finished areas in your home (including your workspace)
- Supporting documents and receipts for all expenses being claimed
- Documents showing your employment income and deduction (i.e. T4 slip)
- Form T2200S signed and completed by the employer
Determining the deduction amount is quite straightforward as the CRA calculator does the heavy lifting. Employees simply need to input information such as the area of their work space and home, hours per week used for work, related maintenance and supply costs, and other expenses.
After inputting all information, a result will be provided, similar to the $400 flat rate with the deduction amount for tax return and T777S form inputs.
Making the $400 or Form T2200S Decision
For employers, the temporary flat-rate method is the no-effort option. However, employees may be able to claim more – especially if they are renting their homes – if they receive Form T2200S.
By providing Form T2200S, you’re giving your employees the option to choose the deduction method that best suits their needs. You can either provide it to all employees by default or provide it as requested.
If you need help with your year-end payroll, Enkel can help. Reach out to learn more.