Since the COVID-19 pandemic many employees now have the option to continue working from home. This leave taxpayers wondering if they can deduct home office expenses related to their employment income on their 2020 tax return. Here is everything you need to know about being eligible for home office deductions.
Typically, an employee can claim home office expenses if the following conditions are met.
- The employee is required by his/her contract of employment to provide and pay for such space;
- A T2200 Declaration of Conditions of Employment is completed and signed by the employer;
- The employee is not reimbursed and is not entitled to be reimbursed from his/her employer for such expenses; and,
- The expenses are incurred solely for the purpose of earning income from an office or employment.
In addition to the rules above, you can deduct home office expenses you paid in 2020 if you meant one of the following conditions.
- The workspace is where you mainly (more than 50% of the time) do your work.
- You use the workspace only to earn your employment income. You also must use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.
Expense deductibility is different for non-commissioned and commissioned employees.
- Commissioned employees may deduct rent, utilities, repairs and maintenance, supplies, property taxes, and home insurance up to the amount of commission income.
- Non-commissioned employees may deduct rent, utilities, repairs and maintenance, and supplies.
You can deduct a portion of the above costs in respect to your workspace. We calculate the tax-deductible amount by taking the sq. footage of your office space divided by the sq. footage of your home and multiplying that by your total expenses. It is important to note, that you cannot deduct mortgage interest or depreciation on your home.
What if you are only working at home during the COVID-19 pandemic?
Many people are only working at home because of the pandemic which may add up to them doing less than 50% of their work at home during 2020. CRA does recognize this fact and may be willing to accept that the test apply only to the time they work from home due to COVID-19. CPA Canada and CRA are still in discussion as to how that might look.
A short version of form T2200 is also on the horizon. CRA is looking to simplify this form to address the administrative burden that will arise from many T2200 submissions. This form will focus on home office expenses, instead of including a complete list of other employment expenses.
Contact Argento CPA if you have any questions about whether you are earning investment income or business income.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.