The Canada Revenue Agency (CRA) has provided 2020 tax filing guidance for Canadians who have had to work from home due to the COVID-19 pandemic. Canadians who are employees would not normally be entitled to a claim for home office expenses on their income taxes, However, the pandemic-induced requirement to work at home if possible means that affected employees will now be able to make a claim.
The CRA has simplified how employees may claim home office expenses on their personal income tax returns for the 2020 tax year. Employees who worked from home for more than 50% of the time over the period of at least four consecutive weeks in 2020 due to COVID-19 will be eligible to claim home office expenses as a deduction for 2020. The shorter qualifying period will ensure that more employees can claim the deduction than would otherwise have been possible under existing practice.
There are three methods to claim the tax deduction for working from home. The first two options are outlined on Form T777S which the employee should review when considering their best option.
Form T777S can be found on the CRA site at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t777s.html
Option 1 – Temporary Flat Rate Method (new)
This method allows eligible employees to claim a deduction of $2 for each day they worked at home in the four-week periods, plus any other days they worked from home in 2020 due to COVID-19 up to a maximum of $400. This represents a maximum of 200 working days at home within a full year. Please also note that you must work more than 50% of the time from home for each period.
Under this method, the employee does not require any form completed or signed by their employer. They would simply calculate the amount and include it in the 2020 personal tax return as a deduction.
Option 2 – Detailed Method (new)
For this method, the specific expenses that may be claimed are outlined on Form T777S. Also, the second page of Form T777S must be completed, and all supporting documentation for any expenses incurred must be kept by the employee. Please also note that you cannot claim any expenses that were or will be reimbursed by your employer.
In addition, the employee must obtain Form T2200S from their employer. This form is available from the CRA at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2200s.html.
This form provided an employer declaration that the employee did work from home due to COVID-19, whether the employee was or will be reimbursed for any of their home office expenses and whether those amounts are included in the employee’s T4.
Option 3 – Historic Method
Employees who historically claimed home office expenses or other employment expenses may still choose to use the historic forms to calculate their home office expense deduction for the 2020 tax year. This will require the standard Form T2200 Declaration of Conditions of Employment to be obtained from the employer. Should the employee use this method, all supporting documentation for amounts claims must be kept.
Form T2200 has been updated for 2020 and is available on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2200.html.
Navigating the many programs introduced in this past year can often be challenging. Our Principals are knowledgeable about the various support programs available and can assist you and/or your employees to better understand how they work. If interested, you can reach me by email at firstname.lastname@example.org and I’ll be happy to direct you to the best resource.