Understanding new options to claiming home office deductions due to COVID-19

From March 2020 forward there has been a previously unimaginable, monumental shift on how business is carried out. To have all, or a significant portion of a workforce move offsite and perform duties from home for extended periods of time was not in any business plan. And it certainly had staff members unexpectedly scrambling to set up makeshift home offices that enabled them to continue their work.

For an employee to claim home office expenses pre-pandemic, it was essential that the employee was contracted to work from home. However, in light of the COVID-19 induced mass change to the working environment, the Canada Revenue Agency (CRA) has made the home office expenses deduction available to more Canadians. They have provided additional and simplified ways that employees can claim these expenses on their 2020 income tax return.

Employees have the following 2020 home office expense claim options:

  1. For employees who worked from home more than 50% of the time for at least four consecutive weeks in 2020 due to COVID-19, a new simplified and temporary flat rate method to claim home office expenses has been introduced. It allows employees to claim a deduction of $2 for each day they worked at home due to COVID-19, up to a maximum of $400. Vacation, leave and sick days cannot be included in this calculation. This option is appropriate for employees with minimal home expenses to claim and does not require tracking of these expenses. Should multiple individuals work out of the same home, each are entitled to claim this flat rate deduction on their personal income tax return.
  2. For employees with higher home office expenses in 2020, the new and temporary Form T2200s “Declaration of Conditions of Employment for Working at Home Due to COVID-19” provides for claiming the actual paid amounts of home office expenses as they pertain to the home workspace (i.e. rent, maintenance, electricity, etc.). It should be noted that commission employees who sell goods or negotiate contracts can claim some additional expenses that salaried employees cannot (i.e. home insurance, property tax, cell phone/computer lease, etc.). Although the T2200s needs to be signed by the employer (electronic signature is acceptable for 2020), it does not need to accompany the income tax return. However, the T777s form “Statement of Employment Expenses for Working at Home Due to COVID-19” will need to accompany the tax return.
  3. Should an employee qualify for deductions in addition to home office expenses (i.e. motor vehicle expenses, lodging, tradesperson’s tools, etc.), the traditional Form T2200 “Declaration of Conditions of Employment” should continue to be used. For the 2020 tax year, the CRA has expanded the list of qualifying expenses (i.e. home internet fees). Similar to the above option 2, the T2200 form needs to be signed by the employer (electronic signature is acceptable for 2020) but does not need to accompany the income tax return. The T777 form “Statement of Employment Expenses for Working at Home” does need to accompany the tax return.

The introduction of simplified and new methods to calculate home office expenses during COVID-19 is welcome news to both employers and employees. Should you require assistance in understanding eligibility, determining the most beneficial method for your unique circumstances or require guidance or assistance in preparation of the required forms, please reach out to us.