Ensuring home office expense claims are done correctly stands to benefit employees, employers and the government alike (Illustration by Leeandra Cianci)
It’s hard to believe it’s been a year since the pandemic hit and lockdowns forced a lot of us to work from home. Now, with tax season in full swing, many employees are asking whether they’ll get a tax break on their 2020 tax returns to help cover their home office expenses.
The short answer is yes. These deductions are welcome even though the write-off may not amount to much in the bigger scheme of things.
The government was quick to recognize that the abrupt shift to remote work would entitle millions of Canadians to claim home office expenses on their tax returns for the first time. These claims can be quite complicated, so helping ensure all these claims are done correctly stands to benefit employees, employers and the government alike.
When CPA Canada provided its input on the best approach, we asked two big questions:
- For employers with employees working from home strictly because of the pandemic, would the government waive the rule that says employees must obtain a T2200 form from their employer confirming their conditions of employment for their 2020 tax year?
- For employees, could the Canada Revenue Agency (CRA) simplify the rules administratively and provide tools and guidance to help employees claim the deduction?
Since then, the CRA has taken some key steps to help employees:
- They made it easier to qualify for the claim, so any employee who worked primarily at home for at least four weeks in a row is generally eligible.
- They created an optional, simplified method for calculating expenses that allows eligible employees to claim $2 per day for up to 200 days, with no need to keep receipts or get a T2200 form from their employer.
- They created tools and guidance for both this simplified approach and the detailed calculation for claiming actual expenses.
For employers, the CRA created a much simpler, pandemic version of the T2200 form specifically for people who worked at home due to lockdowns.
The CRA also agreed to partially waive the T2200 requirement where the employee chooses to use the simplified method. This approach created problems, however. Employers won’t necessarily know which method makes the most sense for each employee, making the T2200 process hard to manage. Should employers simply address individual requests for the form as they come in? Or should they just go ahead and complete simplified T2200 forms for everyone who is eligible?
For the employee, a number of factors come into play when determining which method produces the best result. Perhaps unexpectedly, the biggest factor is whether they own or rent their home.
For the detailed calculation, eligible expenses are added up and then prorated to determine the amount that counts as business use. For a typical home-owning employee working from home, these expenses are mainly heat, water, electricity and other utilities, and, new for 2020, internet costs. By contrast, renters can use the full amount of the rent they pay along with internet costs as the starting point for the calculation.
The issue of how to treat home internet costs is still under debate—specifically, determining the best approach for allocating reasonable amounts for eligible employment-related use and non-deductible personal use.
Rent expenses would generally be far higher than utility and similar costs for homeowners, producing an uneven playing field. However, it turned out to be difficult to devise a simplified approach that would be reasonable for everyone, so many homeowners will be better off using the simplified method. But those who rent will have to make detailed claims to maximize their deduction.
What will happen for 2021 and beyond remains to be seen. It’s widely expected that more employees will work from home in the future. If this trend continues, the government should review the tax rules for remote work expenses to make sure the current rules are fair and without undue complexity.
In particular, the way owners versus renters are treated makes no sense in tax policy terms. A portion of rent paid to a landlord is meant to help cover things like mortgage interest, insurance and property taxes. Yet the rules stop a typical home-owning employee from claiming these costs, even though they pay them directly.
Another issue became clear as the CRA developed tools and guidance for all these new claimants. While the CRA did a great job, the amount of work needed to deliver these resources highlighted how complicated it is to complete the calculation and determine a reasonable amount. The government should work to simplify the deduction permanently.
Overall, the government must seek ways to simplify the T2200 process for confirming employment conditions and improve how it works for employees, employers and the government.
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Learn more about the simplified process for making home office expense claims for 2020. And be sure to check out our tax resources, including our blog, as well as Canadian tax news and COVID-19 updates.