Home office expense claims: how the new rules work

Under the new CRA guidelines, employees will be able to choose between using a new, temporary flat rate method to claim their expenses or using the detailed method (Getty Images/Noel Hendrickson)

If you are among the many employees who were asked to work at home last year because of COVID-19, you may be wondering how you should claim your home office expenses on your 2020 tax return.

Fortunately, the Canada Revenue Agency (CRA) has released new guidelines that should simplify the process for both employees and employers. As Bruce Ball, FCPA, vice-president, tax, at CPA Canada points out, “The CRA has taken a number of steps to make claiming working at home costs easier for employees and to reduce the compliance burden for those employers who provide [the appropriate] forms to their employees.” 

CPA Canada provided a significant amount of feedback to the CRA on both the T2200 Conditions of Employment form process and the home office expense deduction, and it is clear that the CRA took this feedback seriously. [See Ball’s blog post, Employee home office expenses: Special rules for 2020 claims for more details.]

Under the new changes, employees will be able to choose between using a new, temporary flat rate method to claim their expenses or using the detailed method. 

Here are some highlights from the new rules. (Note, however, that for the self-employed, the rules have not changed. “It’s business as usual,” says Ball.)

TEMPORARY FLAT RATE METHOD

Eligibility: To use this temporary method, you must meet all of the following conditions: 

• You worked from home in 2020 due to the pandemic (this applies even if you chose to work from home); 
• You worked from home more than 50 per cent of the time for at least four consecutive weeks in that year;
• You are claiming home office expenses only and no other employment expenses; 
• You were not fully reimbursed by your employer for all of your home office expenses. 

How it works: You can claim $2 for each day you worked from home during the four consecutive weeks mentioned above, plus any additional days you worked at home in 2020 because of the pandemic. The maximum you can claim with this method is $400 (200 working days). 

Why it’s simpler: You don’t have to calculate the size of your workspace, keep receipts or ask your employer to complete and sign Form T2200. And your employer doesn’t need to complete and sign Form T2200 or Form T2200S— a shorter version of Form T2200 that the employer can use if you opt for the detailed method to calculate your home office expenses. (Note, though, that the flat rate method can only be used for the 2020 tax season.)

How to make the claim: First count the total number of days you worked from home in 2020 due to the pandemic (including part days) and multiply that by $2 per day (up to $400 per individual).

Use “Option 1 – Temporary flat rate method” on Form T777S - Statement of Employment Expenses for Working at Home Due to COVID-19 to enter these amounts and attach it to your 2020 income tax return.

Enter the amount from Line 9939 on Form T777S to Line 22900 “Other employment expenses” on the return.

DETAILED METHOD

Eligibility: With the detailed method, you can claim the deduction if you meet all of the following conditions:

• You worked from home in 2020 due to the pandemic or were required to work at home by your employer (this may be a written or verbal agreement and applies even if you chose to work from home);
• You were required to pay for expenses related to your home workspace and used the expenses directly in your work.
• You either - worked in your home workspace more than 50 per cent of the time for at least four consecutive weeks, or - you used the workspace only to earn employment income.
• You have received a signed T2200 or T2200S form from your employer.

Eligible expenses: You can claim office expenses as well as office supplies. However, you must separate the expenses between their employment use and personal use.

Eligible expenses include rent, electricity, heating, home internet access fees, water, maintenance and minor repairs. (Commissioned employees can also claim additional expenses.) 

Non-eligible expenses include mortgage interest, principal mortgage payments, internet connection fees, furniture and capital expenses (such as replacing windows or flooring). 

For utilities, rent and other expenses, you need to allocate the expenses on a “reasonable basis” (i.e., take the area of your workspace and divide it by the total finished area of your home, including hallways, bathrooms, kitchens, and so on).  Where you used a space for both employment and personal use, you will also have to pro-rate eligible expenses based on time. The CRA provides extensive guidance on calculating workspace use.

The CRA has also provided a list of 59 common home office supplies, distinguishing between those that are deductible (such as envelopes, folders, paper clips, highlighters, and so on) and those that are not (such as printers, webcams or houseplants).

How to make the claim: If you are only claiming home office expenses, complete “Option 2 – Detailed method” on Form T777S - Statement of Employment Expenses for Working at Home Due to COVID-19.

If you are claiming other employment expenses (for example, motor vehicle expenses), as well as home (work-space-in-the-home, office supplies and certain phone expenses), or filing a 2019 or prior year tax return, complete Form T777. 

To determine the amount to enter on Form T777S or Form T777, use the CRA’s calculator. It will do the proration calculations and provide a report you can use to fill in Form T777S or T777. Commercial tax preparation software may also provide a calculator as part of the package. 

Enter the amount from Line 9368 on Form T777S or Form T777 on Line 22900 “Other employment expenses” on your return.

Keep Form T2200S or Form T2200, as well as any supporting documents, for six years.

SHOULD YOU CHOOSE THE FLAT RATE OR DETAILED METHOD?

There are a few considerations to keep in mind when making your choice. For example, if you rent your home, it might make sense to go for the detailed method, because you will generally have higher eligible expenses than a homeowner. That’s because homeowners generally can’t deduct mortgage interest, and insurance and property taxes are only eligible for commissioned employees. But, since these expenses are indirectly reflected in rental payments, you will be starting with a higher eligible amount. Meanwhile, for homeowners whose eligible expenses are essentially utilities, the fixed method may provide a deduction that is similar to that under the detailed method.

That said, these are only a few of the factors you should weigh when making your decision. As Ball points out, “As is so often the case with tax-related matters, the choice will depend on your individual circumstances. The CRA calculator or tax software can help you determine which method will work best for you.”

STAY UP-TO-DATE ON FINANCE AND TAX

CPA Canada has a wealth of resources to help you stay on track with your finances. And be sure to check out our tax resources, including our blog, as well as Canadian tax news and COVID-19 updates.