Navigating Tax Write-Offs for Work-from-Home in Canada: A Guide for Employees and Employers
The COVID-19 pandemic drastically altered work-life dynamics in 2020, with laptops and files taking up permanent residence on dining tables and Zoom replacing in-person meetings. Dress codes became more relaxed, with sweatpants and pajama pants becoming acceptable attire. However, this new way of working also brought about many questions regarding tax write-offs for those who joined the Work-From-Home (WFH) club.
Whether you’re an employee seeking to claim a deduction or an employer trying to understand the necessary forms, this guide aims to provide insights and guidance. Although working from home has become a norm for many during the pandemic, some individuals were already required to work from home as a condition of their contracts, such as sales representatives or accountants covering large territories. For them, claiming a portion of their home dedicated to work was likely already a practice. However, for those who permanently joined the club in 2020, this tax season will be a learning curve.
Luckily, the Canada Revenue Agency (CRA) has agreed that the “requirement” now applies to many more people, and two new ways to claim a tax deduction have been created. This guide will outline the necessary steps and forms required to claim your work-from-home write-offs. For the lucky few who require a T2200 form signed by their employer, we’ll provide further details and guidance.
A Guide to Claiming Home Office Expenses in Canada: Understanding the Three Methods Available
If you’re working from home, you may be wondering how to claim home office expenses on your taxes. Fortunately, the Canada Revenue Agency (CRA) has made it easier by providing three methods to choose from. Here’s what you need to know:
Method 1: T2200 This method is still available for those who meet the criteria to claim home office expenses as a requirement of their employment. However, for most people working from home due to temporary changes in work conditions because of Covid-19 precautions, this method will not apply. To be eligible, you must meet the following criteria:
- Working from home is a requirement in your employment contract.
- You incur these expenses directly in the course of your work duties, and your employer has not reimbursed and will not reimburse you.
- The workspace is where you mainly work (more than 50% of the time), or you use the workspace only to earn employment income, and you use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.
Eligible expenses under this method include utilities (including internet access), supplies and maintenance, rent, phone (basic plan + long distance for work-related calls), home insurance (commissioned employees only), and property tax (commissioned employees only). To prepare your claim, fill out Form 777 and indicate the total expenses for eligible expenses listed above. This total is prorated by the percentage of square footage your dedicated office space takes compared to the total living space for the claim amount. Make sure to keep receipts or bills to support your claim if the CRA requests them.
You’ll also need a signed T2200 form from your employer, which you can request. The form must also indicate if you receive an allowance to cover a portion of your costs. Note that this same form is used for claiming business use of a vehicle or other employment-related expenses you’re required to incur.
With this guide, you’ll have a better understanding of the three methods available to claim home office expenses in Canada.
T2200(S) – A New Option for Claiming Work-from-Home Expenses
The T2200(S) is a new option available for individuals who worked from home due to Covid-19 and has a maximum claim amount of $500. Although the “S” stands for short, it does not mean the method is simple, and it follows many of the same principles as the detailed T2200.
To be eligible, you must have worked from home in 2020 due to Covid-19 and incurred expenses directly in the course of your work duties that were not reimbursed by your employer. One of the following conditions must also apply: the workspace is where you mainly work or you use the workspace only to earn employment income and use it regularly and continuously for meeting clients or customers.
Eligible expenses include utilities, supplies and maintenance, rent, and phone (basic plan + long distance for work-related calls). To report your claim, you would use form 777S and report eligible expenses only for the period of time that you were required to occupy a space in your home for work. You then prorate this based on either having a dedicated space (% square footage) or if you used a shared space (% square footage x % hours for work). There is a limit to the total claim amount of $500, and you must retain all supporting documents should CRA request them.
Introducing the Temporary Flat Rate – The Easiest Way to Claim Home Office Expenses!
This method, which has been making headlines as the “$400 Work-From-Home CRA Tax Break,” is the simplest way to claim home office expenses, and it doesn’t require any supporting documents.
You worked from home in 2020 due to Covid-19, either by choice or because it was required You worked from home for more than 50% of your working time for at least four consecutive weeks Not all of your expenses were reimbursed by your employer* *Even if your employer covered some costs such as office supplies, furniture (desk, chair), and/ or equipment (laptop, printer, monitor, etc.), you still qualify.
To claim the Temporary Flat Rate, you would still use form 777S, but you would simply elect to use the flat rate method. There are no eligible expenses to track; instead, you can claim $2 per day that you work-from-home, excluding sick days and vacation days. You do not need any signed documentation from your employer.
Which method is best suited for you will depend on various factors, and the exact answer can only be determined by doing some calculations. The Canada Revenue Agency (CRA) provides detailed explanations and calculators to assist with this.
Here are some general guidelines and precautions to keep in mind:
Between March 16th and December 31st, 2020, there were 201 working days in Canada, excluding weekends and public holidays, for those who work a typical 5-day workweek. You should be prepared to demonstrate how many days you worked from home. If you own your home and do not pay rent, your mortgage is not deductible under the detailed method. If you used a shared or common space in your home (such as a dining table), you must prorate your claim based on the total hours used for work. This can have a significant impact on what you can claim under the detailed method. For a dedicated workspace within a larger room (such as a desk in your bedroom or living room), the prorated cost may only be claimed up to 23%, as 40 hours out of 168 hours in a week equals 23%.
It’s important to keep in mind that this is a tax deduction, which reduces your taxable income, not a tax credit that directly lowers the amount of income tax you owe. Therefore, the effect on your tax return may not be as significant as it may seem at first.