Many Canadians found themselves working from home in 2020, a year defined by uncertainty and punctuated by lockdowns. This tax season, many employees and self-employed workers will be claiming home office expenses for the first time, allowing them to reduce their tax burden for the 2020 tax year. This article provides an overview of the methods and rules in provinces other than Quebec related to the deduction of home office expenses by employees, in Part I below, and self-employed workers, in Part II.
I. Employees working from home
A. Temporary Flat Rate Method
The Canada Revenue Agency (CRA) has introduced a simplified Temporary Flat Rate Method to calculate home office expenses for 2020, with a view to reducing administrative burden. To be eligible, an employee must have worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to COVID-19. Days on which an employee worked either full-time or part-time hours are counted toward this four-week period.
Eligible employees can claim $2 for each day they worked from home up to a maximum of $400, using Form T777S, Statement of Employment Expenses for Working from Home Due to COVID-19. Multiple people working from the same home can each claim up to $400. An employee can use the Temporary Flat Rate Method even where their employer has reimbursed them for some of their home office expenses. However, the employee cannot claim any other employment expenses if they choose to use the Temporary Flat Rate Method. The employee does not have to keep supporting documents such as receipts, nor obtain a Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19 or Form T2200 from their employer, but any communications an employee receives from their employer regarding the option or instruction to work from home should be kept in case of an audit.
Employees who were working from home before COVID-19 must continue to use Form T777, Statement of Employment Expenses when reporting eligible deductions and obtain a completed Form T2200, Declaration of Conditions of Employment from their employer.
B. Detailed Method
Employees may use the Detailed Method to calculate employment expenses, including home office expenses, using Form T777S. The Detailed Method will benefit employees who expect to have expenses exceeding $400. These employees must obtain a completed and signed Form T2200S from their employer (or T2200 if they were working from home before COVID-19) and keep all documents to support the expenses claimed. The Form T2200S is a simplified version of the T2200. To be eligible for the Detailed Method, an employee must meet all of the following eligibility criteria:
- The employee either:
- Worked from home in 2020 due to COVID-19; or
- Was required to work from home by their employer.
- The employee was required to pay for expenses related to the workspace in their home.
- One of the following applies:
- The employee’s home workspace is where they worked more than 50% of the time for a period of at least four consecutive weeks. This can be either a common area of the home or a designated room; or
- The employee only uses their workspace to earn employment income and the employee also uses it regularly and continually for meeting clients, customers, or other people in the course of their work. Note: the CRA has previously taken the position that a “meeting” means an in-person meeting (therefore a telephone call would not suffice). To date, the CRA has not announced any changes to this interpretation in light of COVID-19, particularly whether videoconference calls would be considered “meetings”, but it is anticipated some clarification will be provided prior to the filing deadline for 2020 income tax returns.
- The expenses are used directly in the employee’s work. In the case of any office supplies, these supplies must be consumed directly in the performance of employment duties (stationery, ink cartridges, etc., but not printers or computers or other capital items).
- The employee has a completed and signed Form T2200S or Form T2200 from their employer on file.
The eligible and ineligible expenses related to a home office are outlined in the chart below. For further guidance, the CRA provides a list of eligible expenses in its guide to home office expenses.
|Salaried and Commission Employees
||Commission Employees Only (these additional amounts are limited to the amount of commissions or similar amounts received in the year)
||Salaried and Commission Employees
|Utilities, including electricity, heat, and water
||Expenses that were or will be reimbursed by your employer
|Utilities portion of condominium fees
|Rent paid for a house or apartment where you live in which the workspace is situated
||Lease of a cell phone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning a commission income
||Principal mortgage payments
|Maintenance and minor repair costs (cleaning supplies, light bulbs, paint, etc.)
||Rental value of the workspace in a home owned by the employee
|Employment use of a basic cell phone service plan
||Office furniture and decorations
|Long distance telephone fees
||Capital expenses (replacing windows, flooring, furnace, etc.)
|Home internet access fees (monthly internet fees only, not the cost of leasing a modem or router)
||Office equipment and accessories (printer, fax machine, briefcase, laptop case, calculator, etc.)
|Office supplies (stationery items, pens, folders, toner, ink cartridges, etc.)
||Computing equipment and accessories (cell phone, computer, laptop, tablet, monitor, mouse, keyboard, headset, etc.)
|Other electronics (television, smart speakers, digital assistant, etc.)
|Home internet or cell phone connection fees (one-time initiation fees)
*A reasonable proportion of these expenses attributable to the work-related use of the workspace in the home may be deducted. This proportion must be calculated using some reasonable basis, such as area of floor space used. The proportion of expenses that relate to personal use of the home cannot be deducted. For example, if an employee’s office takes up 25% of the total space in the employee’s home and is used 80% of the time for employment purposes and 20% for personal use, the employee may deduct 20% (25% x 80%) of the utility expenses related to the office space and 20% of the rent. 1
II. Self-employed workers conducting their business from home
A. Income tax considerations
The CRA has not introduced any changes or simplified reporting procedures for self-employed workers. However, due to COVID-19 and the need to work from home in 2020, it is worth discussing some of the considerations involved in claiming business home office expenses for self-employed workers.
Generally, a deduction can be claimed for expenses related to the use of any part of a self-employed worker’s home for work purposes only if certain conditions are met. The workspace must be either: (a) the principal place of business of the individual or (b) used exclusively to earn business income and used on a regular and continuous basis for meeting clients, customers, or patients.
(a) Principal place of business
The word principal in condition (a) is generally understood to mean the individual’s chief or main place of business. When a self-employed worker is forced to work from home due to COVID-19 rather than from their regular workplace, they are unlikely to be disentitled from meeting this principal place of business test. However, the CRA has not provided any updated guidance on this in light of COVID-19.
(b) Used exclusively to earn business income on a regular and continuous basis to meet clients, customers, or patients
In order to meet the requirement that the workspace is used exclusively to earn business income, the workspace must be a “segregated area” of the home that is used in a business and for no other purpose. In light of COVID-19, many self-employed workers have resorted to working from their kitchen table or from a makeshift office space in their living room. This would not normally be considered a segregated area and would therefore not meet the second condition. The CRA has not announced whether it will relax this condition in light of COVID-19.
In addition, the workspace must be used to meet clients, customers, or patients, which the CRA considers to mean in-person meetings (i.e. not telephone or videoconference calls). Due to COVID-19, in-person meetings have been intermittently prohibited in many parts of Canada. The CRA has not provided any guidance on whether videoconference calls would satisfy this condition.
The meaning of regular and continuous depends on the nature of the business activity and the facts of each situation. However, where a business requires only infrequent meetings or frequent meetings at irregular intervals, this requirement may not be met.
If a self-employed worker is eligible, they can generally deduct the following expenses related to their home office space, subject to certain conditions:
- Capital cost allowance (CCA) on the portion of their home used as their workspace (however, if CCA is claimed for the workspace, that portion of the home will not be considered their principal residence, and capital gains will not be exempt from taxation upon a sale)
- CCA on computing equipment and accessories, office furniture, etc.
- Property insurance
- Property taxes
- Interest on a mortgage or hypothec in certain circumstances
- Operating costs (such as heat and light)
- Maintenance costs and minor repairs
- Telephone and internet service
- Office supplies
Any expenses incurred for both business and personal use must be reasonably prorated between those uses.
B. Sales tax considerations
While a complete analysis of sales tax implications of conducting business from home is beyond the scope of this article, it is worth highlighting that further benefits are available. Self-employed workers who must remit sales tax are entitled to input tax credits (ITCs) of 100% of the GST/HST paid on qualifying expenses. However, a self-employed worker is eligible to claim ITCs only if their workspace in the home is either:
- Their principal place of business; or
- Used exclusively (90% or more) to earn income from their business and to meet clients on a regular and continuous basis.2
1 Canada Revenue Agency, Income Tax Folio S4-F2-C2, “Business Use of Home Expenses” (17 April 2018) at paras 2.11 to 2.16.
2 Canada Revenue Agency, “Calculate input tax credits – Percentage of use in commercial activities” (6 July 2020), online.