Employees Working From Home? CRA Updates Tax Deduction Procedure

COVID 19 WFH Tax Deductions

Employers in Canada may have more questions from their employees about what tax deductions can be made on their personal taxes, since many employees are working from home as a result of the pandemic.

The federal government and CRA introduced updated tax deductions for employees from their 2020 income tax returns.

The CRA will still allow employees to calculate their home office expense deductions in the normal procedure (using the T2200 form), but the CRA will now also allow employees working from home in 2020 due to COVID-19 to use a shortened procedure to claim a fixed amount in home office expenses, without the need for the employer to complete a form for them.

Using this temporary short form method, eligible employees can claim a deduction of $2 per day for each day worked from home, up to a maximum of $400 in modest expenses. Employees with larger claims for home office expenses can still choose to use the existing detailed method to calculate their home office expenses deduction. Under this new method, employees will not have to get the standard Form T2200 or Form T2200S completed and signed by their employer.

Employees who wish to deduct home office expenses on their tax returns must meet certain conditions. In order to be eligible, the following criteria must apply:

• The employee worked from home in 2020 due to the COVID-19 pandemic, or the employer required the employee to work from home. Of note, even if the employee could have worked at their regular work location but chose to stay at home (with the permission of their employer), the employee will be considered eligible for the deduction;
• The employee worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020;
• The employee has obtained a completed and signed Form T2200S or Form T2200 from the employer. This Form is only applicable if the detailed method is used, as explained further below; and
• The expenses were used directly in the employee’s work during the period.

Flat Rate Method

The Flat Rate Method is available to employees who have worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. Under the Flat Rate Method, eligible employees can claim $2 for every day that they work from home during that period, plus any additional days that they worked from home in 2020 due to the COVID-19 pandemic. The maximum amount that an individual employee can claim using the Flat Rate Method is $400 (thus 200 working days).

The Flat Rate Method can only be used to claim home office expenses.

Employees cannot claim other employment expenses (such as motor vehicle expenses) if they are using the Flat Rate Method.

Multiple individuals working from the same home can each make a claim, provided that each individual meets the eligibility criteria. The Flat Rate Method can only be used for the 2020 tax year. Only days that the employee worked full-time or part-time hours from home count as working days. Vacation days, sick leave days, and other days off and leaves of absence do not count as working days. Eligible employees who use the Flat Rate Method are not required to: (i) calculate the size of their work space for the purpose of claiming the home office expense deduction, (ii) keep documents to support their claim, or (iii) have a signed Form T2200 or Form T2200S as outlined in the detailed method.

Detailed Method

The CRA has created a new Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19.

Form T2200S is a shortened version of Form T2200 that eligible employees will ask their employers to complete for the Detailed Method to claim home office expense deductions. Employees who use the Detailed Method are required to keep documents to support their claim. The CRA has expanded the list of eligible expenses that can be claimed, which now includes home internet access fees.

For employees who are required to pay for expenses other than home office expenses, employers should complete the Form T2200 instead of the Form T2200S.

Two other important points to note:

• An online calculator is now available to help employees determine the home office expense deduction to which they are entitled.
• Electronic Signatures: For the 2020 tax year only, the CRA has stated it will accept an electronic signature on Form T2200S and Form T2200.

 Contact our firm should you have any other questions about this or other employment law matters.