Here in Vancouver, the pandemic began shutting down some workplaces in mid-March. Just like that, mine and my partner’s apartment became not only our home, but also our office. I was fortunate enough to keep my job, but began to feel the strain as months passed in our one bedroom, one combined living/dining/office/kitchen set-up. Despite the challenges, the benefits of working from home also became apparent. Not only was I working with the nearly constant smell of sourdough bread baking in the oven, I also realized that my new work situation could allow me to reduce my tax payable for the year. All Canadians now working from home should consider how this new normal will affect their tax situation for the year; claiming home office expenses is one potential change that could lead to significant tax savings.
While most self-employed Canadians are aware of their ability to deduct many expenses related to their jobs, employees like me generally have few opportunities to do so. One of those rare opportunities arises when an employee works from home. The COVID-19 pandemic has made it easier than ever to meet the requirements to claim this deduction.
In order to deduct your home office expenses, you must have an agreement or notice from your employer requiring you to work from home. This can be informal, however documentation will be helpful in the event on an audit. Most importantly, your employer must fill out and provide you with Form T2200 certifying that they are allowing you to work from home. Some employers are resistant to filling out this form. If your employer is refusing to issue you the form, you can fill it out yourself and leave the employer’s signature blank, attaching a note describing the methods you used to get the employer to sign and the employers reasons for refusing to do so.
You must also meet one of the following criteria: either your home office must be the place where you perform more than 50% of your work; or, your home office space must be used exclusively for work and for regularly meeting clients. For many city-dwellers, having a space used exclusively for work is not realistic. If that is the case you can confidently claim this benefit only if you are working from home for more than half of the year. For those of you with an exclusive work space, you should be aware that, despite decisions to the contrary, the CRA does not currently recognize online meetings as meetings. This increases the risk of audit, however in light of the physical distancing recommendations currently in place, this rule seems highly impractical and may not stand.
If you can meet the above criteria, you should consider the tax savings you could get from claiming the home expenses deduction. The deduction amount can be calculated by determining the percentage of your home considered a work space and dividing that by the total finished area of the residence. If a room is used for more than one purpose, then you would also need to take into account the percentage of time you use the room for work and for other purposes and factor that into the calculation. Any costs related to the work space, such as rent, hydro, or maintenance can be deducted. However, some costs like mortgage interest, property taxes or insurance expenses are specifically not eligible.
For many employees, especially those renting in expensive housing markets like Toronto or Vancouver, this deduction could lead to significant tax savings. Get in touch with me if you have any questions or want to discuss how this tax framework could apply to your particular situation.