Covid-19 and Having to Work from Home – Tax Savings Potential?

cews_update

Many of us are now required to work from home due to the Covid-19 pandemic. Also, many of us are not used to working from home (certainly not for extended periods, like we are now) because our employer provides us with a work space to carry out our employment duties. In normal circumstances, if a work space is not provided by your employer, you can claim a portion of the costs incurred related to your home office. Here is a description of the rule as provided by CRA (link provided below):

These expenses must be used directly in your work and your employer has not reimbursed and will not reimburse you. Also, you must meet one of the following conditions:

  • The work space is where you mainly (more than 50% of the time) do your work, or
  • You use the work space only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.

Currently, it would seem that most should fit into the first condition. Now, the question is – does a temporary requirement to work from home for part of the year meet either of these conditions? Is the “more than 50% of the time” requirement measured during only this part of the year or is it measured for the whole year? There does not appear to be commentary from CRA on this particular situation – the temporary thing. It seems, under the current circumstances, it would only be reasonable for CRA to agree that the claim for home office expenses would be allowed. It would be nice if CRA was to come out with a clear administrative policy on this. CPA Canada has posed this question to CRA, but has yet to receive a response. What about the other condition – “…meeting clients, customers or other people in the course of your employment duties”? It has been CRAs policy that “meeting clients” means an in-person meeting and that phone calls, video chats, etc. do not meet the requirements to allow for the home office deduction. Again, in light of the current social distancing whereby in-person meetings are severely restricted, we would hope that CRA would reconsider their view on this.

Another key requirement for the home office deduction is for the employer to provide to the employee a completed/signed CRA form T2200 that declares that the employee was required to work from home during the year. In the current situation, it would be fair for the employer to state the portion of the year for which working from home was required. This would then allow the employee to make the claim on their 2020 personal tax return. However, the current version of the form does not take into account the concept of working from home for only part of the year. Again, CPA Canada has asked CRA to streamline the form to take this into account.

What expenses are deductible? In general, you can deduct a percentage of the costs to run your home – utilities, rent, internet, phone/cell phone usage, supplies and maintenance – but, in the case of an employee (as opposed to a self-employed person) you cannot deduct mortgage interest, property taxes, home insurance or capital cost allowance. The percentage of the deductible costs must be determined on a reasonable basis – commonly by reference to the square footage of the work space as a percentage of the square footage for the entire home. And, because of the temporary requirement to work from home, presumably the claim would only be for costs incurred during that period.

One final requirement is that the total claim cannot exceed your income from employment for the year. Again, due to this being a temporary requirement, it is perhaps reasonable for this limitation to be applied on the basis of the income you earn during this same period (not for the entire year).

Another question that might come up – can I claim the cost of equipment (e.g. a second monitor/new desk/chair/home computer) that I need because of the requirement to work from home? Unfortunately, the answer is no. This type of cost is considered to be capital in nature and, as noted above, capital cost allowance (or depreciation) cannot be claimed by someone earning employment income. But in the case of the home computer, CRA has recently released a technical interpretation – on April 22nd CRA stated that there will be no taxable benefit to an employee if the employer reimburses the employee (up to $500) towards the purchase of a computer so that the employee can work from home during the Covid-19 crisis.

The important part of all of this is for the employer to provide the employee with form T2200 – hopefully one that will be revised to take these unusual circumstances into account. The form does not have to be filed with CRA but CRA may ask for it if the claim for home office expenses is audited. And, let’s hope CRA will let us know soon what their position on 2020 home office claims will be – until then it certainly remains very unclear what, if anything, can be deducted by the employee who has no choice but to work from home.

For more information on this speak with your Welch trusted advisor or go to the CRA website.

Author

Don Scott, FCPA, FCA
Director of Tax Services, Partner
dscott@welchllp.com
613-236-9191 #515