Home Office Deductions in the Time of Pandemic

In an “ordinary” year, in order to deduct home office expenses an employer would need to complete and sign form T2200 – Declaration of Conditions of Employment for each eligible employee.  An eligible employee would have had to work mainly from home (greater than 50% of the time) or used the home office on a continuous basis to meet clients or customers.

As you can imagine in a year in which the whole country worked from home this would be an administrative nightmare for some employers and added complexity for employees.  To alleviate the administrative burden, the federal government recently announced as part of their economic statement an allowable deduction of up to $400 for home office expenses for the 2020 tax filing year.  This will allow individuals working from home a deduction for home office without needing to complete a calculation or collect and keep receipts.

Although far easier with respect to filing and administration this simplified approach may not provide the largest benefit if you would otherwise qualify under the existing rules. The challenge will be how the current rules are interpreted in this new reality. For example, is the requirement that the home office be the principal place of employment or be used on a regular and continuous basis for meeting customers measured on an annual basis? How does this apply when the home office is required only during lockdown, or for just part of the year? In terms of the requirement that the space be used to meet customers, CRA has previously taken the position that virtual/zoom calls do not count as meetings. Even before the pandemic, hoteling was becoming increasingly common requiring some employees to work at home on a regular basis some of the time. It is clear that CRA will need to address this evolving landscape and provide updated guidance beyond just the impact of the current health crisis.

The current method of calculating your home office expenses requires adding up all your expenses such as, fuel, water, electricity, light bulbs, cleaning supplies and minor repairs and a portion of your rent (if applicable) prorated based on the size of workspace relative to the entire dwelling.  Only a commission-based employee can also deduct insurance and property taxes and there is no deduction for mortgage interest for employees. There is also no ability for an employee to deduct the cost of furniture or equipment for the home office – although this has recently been added to the list of expenses that employers are allowed to reimburse tax-free to a maximum of $500 if its Covid related.

For an employee who may be renting a small space in which a significant portion became his/her office their home office calculation may well exceed the $400 limit. Therefore, to enhance your deduction you may want to take the time to do a full calculation of your home office expenses to determine if its more beneficial and if so, requesting the T2200.  The Canada Revenue Agency, before the current announcement was looking to create a condensed T2200 just for home office expense however it has yet to be approved.