Simplified process for deducting home office expenses for employees who worked from home due to the COVID-19 pandemic
The Canada Revenue Agency and Revenu Québec are making deductions for home office expenses available to more employees and simplifying the process for claiming deductions on 2020 personal income tax returns.
Prior to the pandemic, employees could only deduct home office expenses on their personal income tax return if it was planned for in their employment contract, and employees had to meet least one of the following criteria:
- work from home more than 50% of the time during the year;
- use their home office exclusively for their job on a regular and continuous basis for meeting clients, customers or patients.
For the 2020 tax year, to be eligible to use the simplified method or the expanded eligibility criteria, employees must have worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. Days that employees worked full-time hours and part-time hours are both considered a work day. Days off, vacation days, and sick leave cannot be counted.
The CRA considers an employee as having worked from home due to the COVID-19 pandemic if their employer required them to work from home or if they were given the choice of working from home due to the pandemic. This means that individuals who already regularly worked from home before the COVID-19 pandemic are not eligible for the simplified method. However, they may deduct their home office expenses according to the rules that were in place prior to the pandemic, if they meet the eligibility criteria.
The new, simplified method
This new, temporary method for the 2020 tax year allows employees to use a simplified method to claim a deduction for home office expenses, including work-space-in-the-home expenses, office supplies, and certain phone expenses.
Eligible employees may claim a deduction of $2 for each day worked from home during that period. They may also deduct $2 for each additional day worked from home due to the pandemic. The maximum that can be claimed is $400 per individual. If multiple people in the same household worked from the same home, they can each claim a deduction of $400, if they meet the eligibility criteria.
For example, if an employee worked exclusively from home 100% of the time due to the pandemic from March 15 to April 11, the employee is eligible to claim expenses related to their work space. If an employee worked from home two days a week from April 12 until the end of September, then 4 days per week in October, November and December due to the COVID-19 pandemic, the employee can claim a $2 deduction per day worked from home from March 15 to December 31.
With the flat rate method, employees do not have to keep supporting documents or have their employer complete and sign a declaration of conditions of employment (Form T2200 for federal taxes and form TP-64.3 for Québec). If an employee chooses the temporary flat rate method, they can only deduct the home office expenses (at a rate of $2 per day) and cannot claim any other work-related expenses. Employees can still use this method even if their employer has reimbursed them for some of their home office expenses.
New detailed method
Employees may also choose to use the detailed method to claim deductions based on their actual expenses. If this method is chosen, the employee must have their employer complete and sign a declaration of conditions of employment (Form T2200 for federal taxes and form TP-64.3 for Québec) and keep their supporting documents.
This method is better for employees who have significant eligible expenses, such as heat, electricity, cleaning products and minor repairs. This employee can deduct a portion of their expenses from their personal income tax return, depending on the area of the work space with regard to the size of the home, whether they rent or own their home.
An employee who rents the space where they have their office can claim a reasonable portion of the rent related to the work space. However, an employee who owns their home cannot deduct any of the following expenses: principal mortgage payments, mortgage interest, property taxes, insurance premiums and depreciation.
Table 1: Summary of work-space-in-the-home expenses
Work-space-in-the-home expenses that can be claimed must be calculated based on the size of the work space as compared with the total size of your home. For example, an employee has $10,000 in eligible expenses for the tax year. The employee uses a designated room only for their work. This room represents 15% of the total size of the home. The employee can claim a total of $1,500 in expenses ($10,000 x 15%).
If the work space is not reserved exclusively for employment use, the amount of expenses that can be claimed is calculated based on the number of hours the space is used for work. For example, an employee has $10,000 in eligible expenses for the tax year. The employee works at the kitchen table because he does not have a dedicated room for working from home. He estimates that the work space represents 15% of the total size of the home. The kitchen is used for work 8 hours per day, 5 days per week. The employee can claim a total of $357 in expenses ($10,000 x 15% x (8 hrs. x 5 days)/(24 hrs. x 7 days)).
Under the new rules, an adjustment must also be made if you did not work from home for the entire year. Only periods when you worked more than 50% of the time from home can be taken into account. For example, a person who worked from home full time from March 15 to June 15 due to the pandemic, then returned to work at their employer’s office after that, can only claim one fourth (3 months/12) of the eligible expenses.
Office supplies and phone expenses are not calculated based on the size of the home. However, the cost of these expenses must be reasonable.
The CRA website has a calculator to help employees calculate their home office expenses.