Work-from-home Tax Implications and Benefits 2020
Updated: Oct 29, 2020
If you are like me, you spent the last 6 months working from home. Much like in this picture, my dog often attempts to distract me or will start barking while I am in a Microsoft Teams meeting. Working from home also presents a challenge for most parents out there.
There are also benefits that come from working at home such as skipping the commute to work everyday and spending less on fuel.
However, today I want to discuss the tax implications and benefits of working from home. I know many people had to find space in their home to work, and in a lot of cases provided their own computer and equipment to work. You may have also had to buy a printer, paper shredder, filing cabinet or office chair.
I have split this article into two sections, one pertaining to employees and one to employers. If you are an employee and are curious about the tax benefits that may be available to you for working from home in 2020, please read the employee section. The employer section will discuss implications for employers such as preparing the T2200 form for employees.
Can I claim home office expenses?
In past years, employees were only allowed to claim home office expenses if they were:
Contractually required to work from home or
It was their primary place of work. This generally meant you worked from home more than 50% of the time throughout the year, by the number of days
However, this will likely change in 2020. There has been indication from the CRA that a work-from-home clause won't be required in an employment contract in order to claim home office expenses. Essentially, they may give an exception for this year so employment contracts don't need to be revised for all employees who worked from home.
What can you claim as a deduction on your tax return?
I should mention the distinction between commission and non-commission employees when it comes to home office expenses. The income tax act is slightly more generous to commission employees, however, I won't go into detail on deductible expenses for those employees in this article.
Employees can deduct a reasonable portion of the following:
Repairs and Maintenance
The reasonable portion generally means the square footage of your house that you use for your home office. You must prorate the cost of rent, utilities, and repairs & maintenance by this area. I have provided a PowerPoint at the bottom of this article that goes through this calculation in detail.
Employees cannot deduct these expenses:
Mortgage Interest (home owners)
Depreciation (CCA) (home owners)
Home office Furniture
What do you need in order to claim deductions on your tax return?
In order to claim home office expenses on your tax return, you need a T2200 form, which will be prepared by your employer. You should also keep any receipts for purchases that you have made. Neither the T2200 nor the receipts need to be submitted with your return, however, you must keep them in case you are asked for them. When filing your tax return, you will need to complete the T777 form for employment expenses.
Reimbursed home office expenses?
In 2020, the CRA is allowing employers to reimburse employees up to $500 to purchase home office furniture, equipment, and supplies without it being a taxable benefit.
The T2200 form is something that is provided by an employer for employees who incurred personal expenses related to the business. The employer has to complete this form in order for the employee to deduct the expenses on their personal tax return. Although the T2200 form doesn't have to be filed with the CRA, it must be kept in case they ask for it.
I've worked for several medium sized businesses and I understand the January and February months can be hectic. You likely have to prepare T4s, T5s, and T2200s. You may also be preparing your year-end for your business.
There has been discussion that the need for a T2200 forms will reviewed for the 2020 tax year. The CRA recognizes that burden that preparing these forms will place on an employer. If your business has 20 employees, you may have to prepare and sign off 20 T2200 forms. Nothing has been officially announced. I will be following this for the next several months and will provide updates as they become available.
Slideshow with Example Calculations
If you have questions about Home Office Expenses or T2200 form, please contact us.