As we approach the 2020 personal income tax filing season, we now turn our heads to determine which expenses we can claim on our tax returns for working from our home offices.
The CRA has also had to adapt quickly to the new normal, and it has provided a couple of different ways for employees to claim home office (HO) expenses in 2020. They are discussed in detail in this BDO tax insight. As I see no reason to repeat this excellent summary word for word, I will quickly recap it and add a couple comments that may be of interest.
To be blunt, since I am The Blunt Bean Counter, I’ll share an observation. Those of us who drove our car for work and did a fair amount of driving to clients and customers in 2019 will most likely find that the additional home office expenses we can claim in 2020 do not make up for the lower car expenses you will be able to deduct this year. As a result, you’ll likely have lower overall employment expenses to claim this year.
Below I summarize the various alternatives to claim your 2020 HO expenses.
New Temporary Flat Method
This method will allow a flat $2 per day for 200 days, so $400 in total (see the BDO piece for the criteria). The best thing about this method is you do not need to track expenses or file the T2200 form, which is completed by your employer and allows you to claim expenses you incur to do your job, such as your home office, car, and telephone). Instead, you will file a Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19.
The flat method is available only for 2020, per the CRA. That said, it could conceivably extend the exception for 2021, depending on how quickly the pandemic subsides and how this impacts remote work.
This method is great for those who struggle to keep records and track their receipts, and have not incurred much in the way of deductible home office expenses in 2020. However, I would suggest that for many Canadians, filing using the flat method will leave a fair amount of expenses on the table.
The detailed method will allow you as an employee to claim the actual amount of HO expenses related to your work from home in 2020. As noted in the BDO tax alert, the “usual way of claiming home office expenses requires you to determine the proportional size of your workspace compared to total finished areas within your home, and the employment use percentage of your workspace in order to calculate your workspace in home deduction. Though these calculations can be tedious, the CRA has provided examples and a new calculator to assist.”
For 2020, if you will be claiming only HO expenses and no other employment expenses on your 2020 return, and you were not eligible to claim HO expenses prior to COVID, you will need your employer to complete Form T2200S, and you will need to complete the simplified Form T777S on your tax return.
If you will be claiming other employment expenses, such as your car or phone, you will need your employer to complete the standard Form T2200, Declaration of Conditions of Employment, and complete the standard Form T777.
It should be noted that if you are claiming HO expenses (see this CRA summary), you can only claim your property taxes and insurance if you earn commissions from your employment (if you earn commission, your total employment expense deduction can’t exceed your commission income). Thus, the home office claim is often not as large as most people expect.
I am often asked how much the CRA will allow as the percentage use for your home office space. I cannot provide a standard answer. Per the CRA as mentioned in the BDO piece, you are required to undertake a detailed calculation of the actual space you use for your office as a percentage of your home’s finished square footage.
I will tell you this. Over many years of preparing tax returns, the typical HO claim assumes a percentage use of between 5% and 15%—most are 5-10%, and very few are greater than 15%. To reiterate, your claim must be based on your actual square footage use.
If you earn business income, as opposed to employment income, everything is status quo. There are no changes to the rules or the way you claim your HO expenses. The CRA made these changes to accommodate employees who typically work out of a physical office but could not do so this year.
I would suggest that over the next few weeks you review your situation to determine which of the above methods best suits your particular circumstances. If you are using the detailed method, start accumulating the required receipts so you can ensure you maximize your HO claim.
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