With much of 2020 spent social distancing to help slow the spread of COVID-19, many Airdronians made the shift from working at an office to working from home.
"As many businesses closed their doors for periods during the pandemic, there were certainly more employees required to work from home. It is reasonable to expect an increase in the number of Canadians claiming a deduction for home office expenses," said Brandy Horn, chartered professional accountant with MNP.
However, qualifying for this type of deduction is not a given simply because an employee is no longer in the office environment.
"Common misconceptions about the home office expense deduction typically involve who and what qualifies," Horn said.
To qualify to deduct employment expenses from their income – including home office expenses – employees must be required to work from home and to pay the related expenses personally, she said
"It is important to note that being permitted to work from home and being required to work from home are different. Only the requirement to work from home allows eligibility for deduction of home office expenses," Horn warned, adding employees must obtain a signed Form T2200 – Declaration of Conditions of Employment from their employer before they can claim any employment expenses on their income tax return, including work-space-in-the-home expenses. This form certifies from the employer that the employee was required to work principally from home.
"Although there is no clear guidance on how principally is determined, it may be considered sufficient – for purposes of the home office deduction – for an employee to spend more than 50 percent of their time working from home. We are hoping for further clarity from the Canada Revenue Agency (CRA) as to how this may be treated where short periods of work, such as one or two months, were performed primarily in a home workspace."
Which home office deductions are and are not allowed also comes as a surprise to many, according to Horn.
Thinking of claiming that fancy new desk chair? Think again. Current CRA guidelines for home office expenses do not allow for furniture, such as an office chair or new desk, to be deducted as a home office expense. The same goes for monthly access fees for home Internet services, home insurance, mortgage interest and property taxes.
"Computer equipment is subject to the same treatment as furniture – it is not a deductible expense," Horn said. "It should be noted that where an employer provides financial support for an employee to equip a home office, such as through an allowance or stipend, the amount of the support would be considered taxable."
What the CRA considers a home office expense is the costs relating to the workspace. Part of the cost for rent, electricity, heating, cleaning materials and minor repairs may be eligible for the deduction – but only the employment-use portion of the cost; the personal-use portion is not deductible.
"The calculation of the permitted deduction [the employment-use portion] is generally based on the area of the workspace divided by the total finished area of the home," Horn said. "This is a general description of the determination: expenses paid that relate only to the workspace may be fully deductible, while expenses paid that relate to an area never used as a workspace will not be deductible at all."
Parts of phone bills also qualify as income deductions. Long-distance calls from a landline can be deducted if made to earn employment income, but there is no deduction available for the monthly rate on a landline. For cell phones, the government allows for a portion of the airtime expenses to be deducted, provided the expense reasonably relates to the earning of employment income.
"An employee is also eligible to deduct a portion of the basic cell phone service plan if the cost is reasonable, the cellular minutes or data consumed was in the performance of employment duties, and the cost of the plan is apportioned between employment and personal use on a reasonable basis," Horn said. "The amounts paid to connect or license the cell phone are not deductible."
Where things become less clear are items related to COVID-19 prevention, such as masks and hand sanitizer.
"Generally, the answer to this is no. Individuals are not permitted to deduct the cost of special clothing required to be worn for work; it is reasonable to consider a mask falls into this category," Horn said. "However, we anticipate that the CRA will be providing clarity as to their interpretation of these pandemic-specific expenses."
Other questions needing clarification from the government include whether virtual meetings will be considered "meeting clients at home." Will those who haven't worked a full six-months from home qualify? Will formal employment contracts be required? Should the rules prohibiting the claim for Internet access costs be relaxed for 2020?
"These questions are all valid and, as yet, the answers are uncertain," Horn said. "In the past, the CRA has taken the position that virtual meetings do not qualify with respect to determining if an employee's home office can be viewed as a place where an employee regularly meets customers. However, as the pandemic has caused many employees to be engaging with customers exclusively on a virtual basis, there is speculation that the CRA may issue new guidelines.
"We are hopeful that clarity will be provided by the CRA but as the deadline for personal income tax filing is still months away, we understand that other issues have taken priority at this time."
"Employers should also have documented in writing the employee's requirement to work from home and personally pay for expenses," Horn said, adding receipts for any expenses must be maintained by the employee.
While those required to work from home wait to hear if the CRA will further clarify rules about working from home during the pandemic, it is anticipated there will not be changes for self-employed individuals.
For those claiming employment expenses for the first time, Horn suggests turning to the experts.
"The best advice is to seek advice," she said. "If someone is uncertain if they are eligible to claim the deduction or what they are eligible to claim, it is best to talk to their tax advisor."