This article is taken from our quarterly newsletter, Canadian Overview, published by the Canadian member firms of Moore North America. The articles in our newsletter are part of our mission to become the partner of choice for your success by keeping you up to date.
BY STEPHEN LANNI, CPA, CA, DE SEGAL LLP
Due to Covid-19, many employees had to work from home for much of calendar year 2020. As a result, employees may claim a deduction for home office expenses when calculating their personal taxes for 2020.
Generally, if an employee maintains an office in his home, he can deduct certain expenses if one of the following two conditions is met:
1. the workspace is the employee’s principal place of work in which he/she performs his/her duties
his job;
2. the workspace is used exclusively for the purpose of earning employment income and is used, on a regular and continuous basis, to receive clients or patients of the person in the course of employment.
The first condition is that the workspace is used by the employee as his or her principal place of work, in which he or she performs the functions of his or her job. The Canada Revenue Agency (CRA) has stipulated that it will recognize an employee as working primarily in the workspace if he or she spends at least 50% of his or her time performing the duties of his or her job in that workspace. It’s important to note that there are no clear guidelines, at least for the moment, for measuring the time spent
annually or over a defined period.
If any of the above conditions apply, the employee must complete Form T2200 – Declaration of Conditions of Employment for each year for which home office expenses are claimed. Home office expenses that can be deducted include operating costs such as heating, electricity and water, as well as rental and maintenance costs. In addition, if the employee is a commission salesperson, property taxes and home insurance are deductible. Deductible expenses do not include purchases of tangible fixed assets such as office furniture. Office costs should be prorated, based on the size of the workspace in relation to the size of the accommodation or rented space. The other portion of costs is considered personal and specifically excluded from the deduction.
Generally speaking, the portion of expenses relating to workspace is calculated by dividing the source of the workspace by the total surface area of the dwelling. However, if the first condition above is used to establish eligibility for the deduction of home office expenses, the calculation to obtain the deductible amount of home office expenses must take into account the number of hours spent performing the duties of the job in the workspace. Therefore, if 70% of the job duties are performed in the home office, 70% of the prorated workspace costs are deductible.
For the year 2020, many employers will have to provide form T2200 – Declaration of working conditions. This will take up a lot of their time, as they will have to prepare each form individually for each employee. In addition, the imprecise timeframe associated with the first condition mentioned above creates uncertainty, and a decision will have to be made when employees request the form. It’s up to the employer to decide whether or not to provide the form.
On this and other issues, CPA Canada, at the time of writing, is in consultation with the Canada Revenue Agency to help employers and employees address home office expense requirements to ensure centralized compliance.
