The need for social distancing has created a mass migration from office complex to home office, accelerating a trend that shifts more of the burden of maintaining a work space, and providing work related supplies, to individual employees. But with that burden comes certain tax advantages.
As the Canada Revenue Agency (CRA) deals with an onslaught of claims for wage compensation right now, one issue yet to be fully addressed is how to deal with an influx of home office claims.
For now, tax experts advise anyone who finds themselves working from home as a result of the pandemic to keep tabs on when they began operating from their homes, how often, and for how long; especially if they are to return to their places of work before the end of the 2020 tax year.
For some, the split between workplace and home could get complicated from a tax perspective. Home-office deductions can normally be claimed only if the home is used for at least half of the total work time. The 50-per-cent rule also extends to the taxation year, but under the current circumstances in which people could only be working from home for a portion of the year, the CRA will consider cases on an individual basis.
Home office workers are also advised to keep track of out-of-pocket expenses relating to their work. That includes office supplies, computers and other equipment – and even repairs and maintenance to the workspace. Normally, those expenses can be fully deducted from related income, which lowers the individual’s overall tax bill.
As it stands, a portion of home utilities including electricity, heat and water can also be deducted. The portion is based on the square footage of the home office in relation to the total square footage of the home. If, for example, the office space is one-fifth of the home, 20 per cent of utilities can be deducted from income. In order to prove home office expenses are required to perform work duties, the CRA requires documentation from the employer through Form T2200: Declaration of Conditions of Employment. It can be filed with your 2020 tax return or kept on record if requested by the CRA.
It’s important to keep in mind that expenses provided by or reimbursed by the employer, such as internet service or office supplies, cannot be claimed.
For those who were already working from home for an employer during the 2019 taxation year, the tax-filing deadline has been extended to June 1 from April 30. They will have until Sept. 1 to pay any 2019 income taxes amounts owed with no interest or penalties.
The tax-filing deadline for self-employed Canadians working from home remains June 15 – for now. They can claim the same home-office expenses as employees working from a home office along with a portion of property taxes, house insurance, mortgage interest and depreciation. Repairs and maintenance can also be claimed provided the work is directly related to the home office.
Individuals who use their own vehicles to generate income can also deduct the work-related portion of costs – whether they work for themselves or an employer. Those expenses include repairs and maintenance, vehicle insurance, licensing fees, fuel, lease or depreciation for those who own their vehicle.
It’s important for people claiming vehicle expenses to document their usage and expenses in a log book with entries for each business trip. Each entry should include the date, destination, the purpose of the trip and distance in kilometres. The kilometre reading on the odometer should also be recorded at the beginning and end of the tax year to establish the portion used for work.
Above all, people working from home or using their vehicles for work should use common sense. Nothing sets off red flags for the CRA like deductions that consume a large portion of income.
CRA rules and regulations could change as the economic fallout from COVID-19 continues. Updates are available on the CRA website, or it might be wise to consult a tax expert.