Zoom, Google Hangouts, and Microsoft Teams became the default office for many of us during 2020. While working from home was an option for some businesses prior to COVID-19, the pandemic accelerated the use of digital platforms as the main source of business communication.
One of the impacts of this change in business practice is the way that people will be able to claim home office expenses in their 2020 tax returns.
Your approach to how you should best claim these expenses depend on whether you are a(n):
- Employer, or
- Business owner.
I am an…Employee
Prior to 2020, you have been able to claim home office expenses on your taxes as long as your employment contract stipulated that you were required to work from home, and obtained a Declaration of Conditions of Employment (Form T2200) from your employer. This form verifies that you were required to pay for out-of-pocket home office expenses to perform your employment duties.
Since so many Canadians unexpectedly found themselves in new working conditions this year, these two conditions may not be met by the average employee who left the office because of the pandemic.
The government has therefore created some simplified options for eligible employees, including:
- Temporary flat rate method: If you are an employee who has worked at home for over 50% of a period of at least four , you can claim a deduction of $2 for each day that you worked from home due to COVID-19 (for a maximum deduction amount of $400). This method does not require any forms to be signed or submitted by your employer.
- Detailed method: This option allows you to deduct the actual expenses that you paid for working at home. To qualify, your employer would have to sign and submit either a Form 2200 or 2200S to declare that the conditions of employment required the employee to pay for home office expenses. The government has developed a simplified version of Form T2200S, specifically for employees who were required to work from home because of COVID- 19.
Example home office expenses that you may be eligible to deduct include percentages of electricity, heat, water, utilities, condominium fees, internet, rent and more. Note that you will need to keep detailed records (i.e. receipts, invoices, bills) of these expenses to substantiate your claim.
Note that you cannot claim a deduction for any expenses that have been reimbursed to you by your employer.
I am an…Employer
It is likely that your employees have incurred some additional expenses when they began to work from home that they may be able to claim on their personal income tax returns.
To combat the administrative burden that this transition to working from home has created, the government has approved a flat rate that employees can claim depending on how long your employees had to work from home during the pandemic. The flat rate method is capped at a maximum of $400.
There is another option available to your employees that could allow them to deduct more however it requires an intervention on your behalf. If you are able, consider completing form T2200S, a Declaration of Conditions of Employment, for each eligible staff member to certify that they had to incur home office expenses due to COVID-19 that you did not reimburse. This will enable them to claim out-of-pocket home office expenses on their personal income tax returns.
I am a…Business Owner
As a business owner working from home you are able to claim home office expenses directly through your business without needing to prepare a T2200.
You may be eligible to deduct various expenses including a percentage of your electricity, heat, water, utilities, condominium fees, internet, rent, mortgage interest, property tax, property insurance, and more.
Helping you determine how to best claim home office expenses is just one of the many services that Stonehenge offers. Feel free to connect with us for this and any of our other services.