The Canada Revenue Agency (the "CRA") announced in December new measures designed to simplify the ability of taxpayers to deduct employment expenses related to remote working. These new measures are a simplified method to calculate the deduction with a flat rate, two simplified forms and modifications to the requirements of eligibility to claim such expenses.
Revenu Québec announced that it will align its approach with that of the CRA.
Eligibility to claim employment expenses
For 2020, an employee will be entitled to deduct home office expenses if:
- The employee paid their own expenses which have not been and will not be reimbursed by the employer; and
- The employee worked from home for over 50% of the time for four consecutive weeks, at one point during the year.
Prior to these new measures, deductibility was only available where the employment contract required the employee to work from home. In the context of the COVID-19 pandemic, the CRA indicated that, for the 2020 year, whether or not the employee is obligated to work from home, in compliance with the sanitary measures imposed by the government and/or their employer, the employee will be allowed to claim home office expenses as long as they have worked from home for the prescribed amount of time. The employee does not have to be required by contract to do so.
Methods for claiming the deduction
For 2020, employees can use two different methods to deduct home office expenses, namely the traditional detailed method and the new temporary flat rate method.
To use the detailed method, in addition to the requirements discussed earlier, employees are required to pay for expenses related to their home office and complete form T2200 - Declaration of Conditions of Employment (or its new simplified version T2200S) and have it signed by the employer. Expenses reimbursed by the employer cannot be claimed.
The employee may deduct all reasonable expenses that are eligible, including:
- Office material (paper, pens, pencils, staples, etc.);
- Home internet access fees;
- Fees for phone or cell-phone usage related to work;
- A reasonable part of your rent; and
- Heating, electricity and minor repairs.
Some expenses that may not be deducted include:
- Office furniture (desk, chair, lamp, etc.);
- Office equipment (printer, fax machine, etc.);
- Computer and accessories (monitor, keyboard, mouse, webcam, headset, etc.);
- The rental value of your office, in a case where the employee is a home owner; and
- Mortgage interest and capital payments.
The above lists contain some of the most common expenses incurred by taxpayers. To determine the amounts that may be deducted, taxpayers must use a reasonable basis. For instance, using the proportion of the office space to the total home's surface. Also, if the office space is used for other purposes, that must be taken into consideration.
As an example, if the office space represents 10% of the home, but is used 80% of the time for employment and 20% for personal usage, the taxpayer may deduct 8% of the rent, heating, electricity, home internet access, etc.
Flat rate method
This is a temporary method only available for 2020. There are no additional requirements to be eligible to use this method and it can be used even if the employer reimbursed some of the employee's home office expenses, but not all.
Using this method, employees can claim $2 per day worked from home, up to a maximum of 200 days1 with the result that an employee can claim up to $400 using this method, without providing any supporting documents to prove expenses actually incurred. Employees are also not required to complete form T2200 and obtain the employer's signature. An employee who uses this method cannot claim other employment expenses.
Selecting the method to use
The decision to use one method or the other depends on the specific situation of the employee. The detailed method carries a much heavier burden (documenting expenses incurred, allocation of expenses based on usage, preparing forms, etc.), but can provide greater economic value. The flat rate method is much simpler, but can only provide a maximum deduction of $400.
Despite being more complicated, it appears that the detailed method might be advantageous for employees that rent their place of living in areas where the rent per square footage is high. Rent being, by far, the most significant expense in such cases. On the other hand, employees that are home owners or living in suburbs might prefer using the new flat rate method.
Allocation or reimbursement from the employer
When an employer provided a general allocation to the employee, the amount so paid will be a taxable benefit to the employee even if the employee used the allocation to purchase office equipment. If, on the other hand, the employer reimbursed the employee for office equipment that was mainly used for the benefit of the employer, the first $500 will not be treated as a taxable benefit.
For Revenu Québec
Quebec taxpayers using the detailed method will need to submit the following forms with their tax return:
- Form TP-59.S-V - Expenses Related to Working Remotely because of the COVID-19 Pandemic, and complete Part 1 and Part 3;
- Form TP-64.3-V - General Employment Conditions, completed and signed by the employer1.
Quebec taxpayers using the flat rate method need only complete Part 1 and Part 2 of Form TP-59.S-V and include it with their tax return.
For the Canada Revenue Agency
For federal income tax returns, taxpayers claiming home office expenses due to COVID-19 are required to submit Form T777S - Statement of Employment Expenses for Working at Home Due to COVID-19. This form must be completed regardless of the method the taxpayer uses.
Taxpayers using the detailed method must also complete form T2200 or its simplified version, T2200S and have it signed by the employer (although this form is not required to be submitted with the tax return of the employee, but rather needs to be available upon request by the CRA).
Role of the employer
It is likely that an employer will have some employees wanting to use the detailed method and others wanting to use the flat rate method. Accordingly, an employer can sign Form T2200 or T2200S for certain employees and does not have to do so for all employees. It should be noted that employers have no obligation to sign and thus certify the information provided in this form. Should the employer refuse to do so, the employee will not be able to use the detailed method.
To alleviate the administrative burden, the CRA will also be accepting electronic signatures for Form T2200S.
1 Days where no work was performed, sick days and vacation days do not count as workdays. A day where the employee worked partially from home and partially from the office counts as a "day worked from home".
2 Revenu Québec will be accepting electronically signed copies of this form as long as the health emergency remains in effect.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.