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Deducting work-from-home expenses during COVID-19

Author(s): Dov Begun

Jan 6, 2021

As part of the 2020 Federal Fall Economic Statement, Deputy Prime Minister and Minister of Finance Chrystia Freeland announced that the Canada Revenue Agency (the CRA) would simplify the process to allow employees working from home in 2020 as a result of the COVID-19 pandemic to claim certain home office expenses as a deduction on their income tax return for 2020.

Under the existing rules, employees are only entitled to claim home office expenses as a deduction from their income if the employee was required to

  • maintain a home office where the employee performed their work more than 50% of the time, or
  • have a workspace used only to earn income from employment on a regular and continuous basis for meeting clients, customers or other people in the course of the employment duties of the employee.

Employees were also required to obtain a signed Form T2200 from their employer.

In order to expand the availability of the home office expense deduction and simplify the process for claiming the deduction for eligible employees who worked from home in 2020 due to the COVID-19 pandemic, the CRA has introduced a new “temporary flat rate method” and has also offered up a simplified version of the detailed method.

The temporary flat rate method

Under the temporary flat rate method, employees who worked from home due to the COVID-19 pandemic more than 50% of the time for a period of at least four consecutive weeks in 2020 are entitled to claim a deduction of $2 for each day the employee worked at home in 2020 up to a maximum claim of $400.

For purposes of determining what qualifies as a work day, days worked full-time from home or part-time from home will count, whereas days off, vacation days, sick leave days or other leaves or absences will not count. Employees who were not required to work from home, but who chose to do so when provided with the option by their employer are still eligible under the temporary flat rate method. Under this method, the employee is not required to calculate the size of the available workspace, retain any supporting documents or keep track of actual expenses incurred. The employee is also not required to obtain a completed form T2200 from their employer, thereby easing the burden on employers. However, only home office expenses can be claimed, and no other employment expenses may be claimed using the temporary flat rate method.

In order to claim the deduction under the temporary flat rate method, employees will be required to complete and submit the new Form T777S with their tax return for the 2020 taxation year. Additional information on the temporary flat rate method is available on the CRA’s website here.

The simplified detailed method

For employees seeking to claim additional expenses, the CRA has continued to make available a detailed method for claiming the home office expense deduction although the process and forms have been simplified. Employees who are eligible for the temporary flat rate method are also eligible to use the detailed method.  

In order for an employee to claim actual expenses for working from home under the simplified detailed method, each of the following conditions must have been met.

  • The employee must have worked from home in 2020 due to the COVID-19 pandemic, or the employer must have required the employee to work from home, more than 50% of the time for a period of at least four consecutive weeks in 2020. As noted above in relation to the temporary flat rate method, the CRA has acknowledged that where the employer provided the employee with the choice to work at home because of the pandemic, this requirement will have been satisfied.
  • The expenses must be used directly in the employee’s work.
  • The employer must provide the employee with either a completed and signed Form T2200S or Form T2200.

Generally, expenses that are eligible to be claimed by employees under the detailed method are home office expenses that are used directly by the employee during the course of employment and that are not reimbursed by the employer. Common examples are rent, electricity, heating, water and certain maintenance and minor repair costs. Under the detailed method, employees will be required to calculate their actual home office expenses and determine which expenses are “eligible expenses” and to apportion those expenses between personal use and employment use. Additional information is available here.

The CRA has expanded the list of eligible expenses an employee working from home may be able to claim to include home internet access fees. The full list of eligible expenses is available here.

Employees using the detailed method will be required to retain documents supporting the claimed expenses. Employees will also be obligated to obtain a signed Form T2200S from their employers. Recognizing the additional burden this may pose on employers, the new Form T2200S is a simplified version of the Form T2200 that requires the employer to provide only the name of the employee and the employee’s address and respond to the following three questions:

  • Did the employee work from home due to the COVID-19 pandemic?
  • Was the employee reimbursed for any home office expenses?
  • Was any reimbursement amount included in the T4 slip issued to the employee?

An electronic signature on the Form T2200S is acceptable for 2020.

Please contact any member of our National Tax Group should you have any questions about deducting work-from-home expenses during COVID-19 or any other tax matter.