Did you start living the WFH (Work From Home) life in the last year and want to know what types of deductions you can qualify for? The truth is employment expense deductions are more restrictive than what you may have heard, but do not fret, we’ll provide you with the information you need to know to see if making the claim is worth your effort to reduce your overall tax bill.
First off, to qualify for employment deductions in general, you have to be an employee and your employer requires you to pay expenses to earn your employment income.
There are several different types of employment deductions that you can qualify for, however, for those in the WFH world, we’re going to focus here on supplies and workspace-in-the-home expenses.
The CRA gets pretty specific with the types of expenses that you can deduct. Their goal is to allow you to deduct only the cost of your supplies that you use directly for your work such as stationary, stamps, toner etc. What CRA doesn’t allow you to deduct are capital assets like a desk, new chair, computer etc. In CRA’s employment deductions guide, they used examples like a briefcase and calculator, so otherwise put, if you can’t physically use it up, it can’t be deducted.
Phone expenses also receive special treatment. You can only deduct the portion of your basic phone plan if:
- The cost of the plan is reasonable
- You can show that your use directly relates to your employment
- Only the employment portion of your phone bill can be an expense.
Lastly, when it comes to special clothing and tools, theses expenses aren’t deductible either (unless you’re a trades-person or apprentice mechanic) but that’s beyond the scope of this article.
Home Office Expenses
Here are the criteria for deducting home office expenses:
- You have to perform more than 50% of your work, or
- You have to be using the workspace to earn your employment income on a regular and continuous basis for meeting clients, customers or other people in the course of your employment duties
The types of expenses that can be deducted include: electricity, heating and maintenance. Unlike home office expenses for self-employed individuals, you can’t deduct your mortgage interest, property taxes or home insurance.
The next step is to calculate how much of those costs that you can deduct. This is based on the percentage of your home that you use for your office, compared to the entire square footage of your home.
The CRA does provide guidance and states that it is reasonable to use the square foot percentage to calculate the cost of utilities that can be deducted. Whereas the cost of direct maintenance for your home office can be deducted at 100%.
If your office space is in a rented house or apartment where you live, you can deduct the percentage of rent that relates to your workspace.
There is also another grind to your allowable home office deduction if the room you use is multi-purpose. Such as an office from 9-5 and a homework centre for the kids 5-6 and a guest room on the weekends.
Lastly, claims for home office expenses are also limited to the amount of employment income earned as well.
You can also qualify for a GST/HST rebate for the tax that you paid on your expenses if your employer is also a GST/HST registrant on form GST370 and it’s filed with your personal income tax return.
So what happens if my employer paid for my computer equipment?
Usually when employers reimburses the cost of computer equipment for an employee’s home office, that amount is considered to be a taxable benefit to the employee. With the onset of COVID-19, the CRA has allowed for up to a $500 exemption for computer expense reimbursements. This is due to the fact that the CRA views the employer to have benefited more than the employee in their ability to work from home.
So what paper work do you have to fill out?
If you do have qualifying employment expenses, you’ll have to ensure that your employer fills out a T2200, Declaration of Conditions of Employment form for you. The purpose of this form is to show to CRA what expenses your employer has required you to pay.
Then we move on to form T777 where you enter your specific expenses. The amount you enter for your employment expenses should include the amount of any GST, PST or HST that you have paid on the expenses.
You can do it on your own if you’re using software like Turbo Tax or feel free to contact our office if you’re looking for a tax professional to take the lead.
Here’s one of the ways where the CRA hasn’t levelled the playing field and it’s that there’s an inconsistency where those that rent are allowed to claim a portion of their rent expenses. Whereas those who own their homes are not allowed to claim any portion of their mortgage interest or property taxes.
There has been a lot of discussion in the tax community on whether or not employees would be able to make a claim for home office expenses at all. This is because the employee would have to WFH for more than 6 months of the year meeting the 50% threshold. Additionally, when it comes to client meetings, the CRA has not considered virtual meetings to meet the definition of meeting clients, customers or other people in the space. Based on the world that we now live in where Zoom meetings are now an everyday occurrence, we hope that the CRA will update their administrative position to include virtual meetings.
Given the notes above, we also hope that the CRA will allow employment claims for a period of time, such as March – April, where employers required employees to work from home to encourage physical distancing.
With regards to home office expenses being limited to the amount of employment income earned, it would also be reasonable for that limit to apply for the period that you are claiming home office expenses, rather than your overall earnings for the year.
- Make sure that you keep good records. They should show the date you made a purchase, the name and address of the seller or supplier, your name and address, a full description of the goods or services you purchased and GST/HST that you paid on your expenses. No need to send that information to the CRA, but keep them for at least 6 years and the format can be electronic or paper.
- If the CRA comes a-knocking, make sure that you can show support for how much you used your cellphone and for the square footage of your home office claim.
- If your employer has already reimbursed you for an expense, you can’t double dip by claiming it again.
- Make sure that you have your employer sign your T2200 form early so that yours doesn’t get lost in the shuffle, since there will likely be a lot of claims made for the 2020 year.
- Keep your pay stubs so that you can see how much you earned each month if you only worked at home for part of the year.
At the end of the day, you’ll have to decide for yourself whether or not the employee expense deduction will be worth it for you. Just remember that your home office expenses are pro-rated for the amount of time that you used the office as well as for the total percentage of your home. There aren’t a whole lot of deductions that are available for those who work from home, but some are better than none and at least you didn’t have to commute in to work – (unless you really did want to get away from the kids for a bit of sanity time. In that case, our condolences). Lastly, if you got the short end of the stick and had to purchase all your own equipment for work, you should ask your employer for a reimbursement before it’s too late.