One year into the COVID-19 pandemic and many Canadians find themselves still working from home. So not only are people continuing to stay at home and use their homes as office space, they may also be paying more for things like:
- office supplies and other workspace expenses.
Going into tax season, this brings up the question: can you deduct any of these work-from-home-related expenses?
Before you start looking into expenses you can claim, let’s see if you’re eligible for these deductions to begin with.
What do you need to claim work-from-home expenses?
In order to deduct home-office expenses on your 2020 tax return, the Canada Revenue Agency (CRA) states that you must have worked from home more than 50% of the time for at least four consecutive weeks.
How much can you claim in work-from-home expenses?
The CRA has issued a temporary flat rate method for the 2020 tax year. This rate allows eligible employees to claim a $2 deduction for each day they worked from home due to COVID-19. (This includes the four-week period and any other work days beyond that. But keep in mind that you can’t include vacation days, weekends, sick days or any leaves of absence. However, the CRA will let you treat days where you only worked a portion of the time – like a “half day” – as a full day.)
If you’re eligible, you can claim up to a maximum of $400. Under this method, you won’t even need to submit any tax slips from your employer to get this deduction.
If you choose this method, you’ll have to fill out "Option 1 – Temporary flat rate method" on Form T777S - Statement of Employment Expenses for Working at Home Due to COVID-19. In this form, you’ll have to enter the number of days you worked from home last year and multiply it by $2 day. But with the temporary flat rate method, you can claim only up to $400 regardless of how many days you worked from home.
Remember to attach the form to your 2020 income tax return after you’ve filled it out.
What if you want to claim more than the temporary flat rate?
If you want to claim more than $400, then you’ll have to use the CRA’s detailed method to deduct your home office expenses.
Under the detailed method, you’ll have to:
- complete a T777 or T777S form and
- get a signed T2200 or T2200S tax slip from your employer.
What’s a T2200 or a T2200S?
They’re tax forms that your employer fills out and sends to you to submit with your tax return. The form tells the CRA what parts of your job cost you money out of your own pocket when you work from home. For example, if your employer requires that you pay for items like electricity, internet and heating, among other expenses, when you work from home, they must say so in the form.
Where can you get a T2200 or a T2200S?
Your employer may provide you with one of these forms. Reach out to your employer or HR department to see if they’ll be sending you any of these tax forms for the 2020 tax year. They can tell you whether or not you qualify for working-from-home tax deductions.
What if you’re self-employed?
For the time being, only salaried employees can receive a T2200. If you’re self-employed, you must continue filing your taxes as you’ve done in the past. At least until the Canada Revenue Agency (CRA) says otherwise.
Now let’s take a look at what you can and you can’t deduct for the 2020 tax year under the detailed method.
What expenses can you claim with the detailed method?
Eligible employees (both salaried and commission) can claim a portion of certain work-from-home-related expenses. This includes:
- home internet,
- home maintenance and minor repair fees, and
Plus, commission employees can also claim:
- home insurance,
- property taxes,
- lease of devices (e.g. smartphones, computers, laptops, fax machines, etc.)
The CRA recommends using their calculator to determine your home office expenses.
What expenses can’t you claim?
The CRA says that salaried employees and commission employees can’t claim expenses such as:
- mortgage interest,
- principal mortgage payments,
- home internet connection fees,
- capital expenses (e.g. replacing windows, flooring, furnace, etc.) and
- wall decorations.
Visit the CRA’s Expenses You Can Claim page for more detailed information on what you can and can’t claim.
Keep your receipts and bills
Remember to keep track of any expenses you want to deduct. This means keeping bills and receipts that support your claim to a deduction. You never know if the CRA will ask for them in the future.
Tax deductions vs. tax credits: Know the difference
It’s also important to note that claiming these work-from-home expenses provides a tax deduction, not a tax credit.
What’s the difference between a tax credit and a tax deduction, you ask? A tax credit can directly reduce your tax bill. For example, a tax credit of $200 will directly lower your tax bill by $200.
A tax deduction, however, lowers your income so you pay less tax. How much less depends on your tax bracket. So if you fall into the 29% federal tax bracket, a $1,000 deduction saves you $290 on your federal return. You may save more in provincial taxes.
Talk to a tax professional for more information
That’s a quick look at the government’s rules around work-from-home expenses in the 2020 tax year. But bear in mind that the CRA may announce changes to the tax rules at any time. Visit the CRA’s website for any tax announcements. We also recommend you consult with a tax professional like an accountant to:
- stay updated on the latest tax information and
- make sure you’re eligible to receive certain tax deductions and credits.
- Can you get a tax refund for your medical expenses?
- Do you qualify for the disability tax credit?
- Are you paying more tax than you need to?
This article is meant to provide only general information. Sun Life Assurance Company of Canada does not provide legal, accounting, taxation, or other professional advice. Please seek advice from a qualified professional, including a thorough examination of your specific legal, accounting and tax situation.