TAX EXPENSE REQUIREMENTS FOR CANADIANS NOW WORKING FROM HOME DUE TO COVID-19
Navigating Misinformation During Times of Coronavirus
Over the last week or so, I’ve started seeing a ton of news articles about the deductibility of home office expenses for Canadians who are now working from home due to their corporate offices being shut down. My main concern with these articles is that they seem to gloss over some of the requirements that are needed in order to allow employees to claim home office related expenses on their tax returns.
To confirm, I fully agree that when you have been required to move your regular office to your home and you’ve had to reconfigure things to accommodate this, that the home office expense deduction should be available to you. However, I want to make sure Canadians are not misinformed and that they understand how to make sure they have the appropriate information available to make such a claim on their 2020 tax returns, which will be filed in April 2021.
If you’re among this group of Canadians newly relocated to a home office, here are some tips on what you need in order to qualify for any home office expense deduction:
- Your employment contract needs to allow for you to work from home. You may need to get in touch with your employer and take care of the paperwork first to make things official.
- Your employer must provide you with a Form T2200 and it must be signed by your employer.
- If your employer has provided you with an allowance to help you cover some of the costs required to convert a portion of your home into a home office, this amount must reduce your home office expense claim.
- If you have a mortgage on your home/condo, etc., only the Mortgage INTEREST is allowed to be a part of the total calculation. The principal portion is not allowed.
- Only the office portion of your home is allowed to be deducted. Areas like your kitchen or bathroom are not considered to be a part of your home office and so you’ll need to determine the appropriate percentage of your home that qualifies as a home office. For example, 25%.
- If you are only allowed to work from home for a total of five months, then you should likely prorate the total amount of expenses allowed by 5/12ths.
- The form that you will fill out in 2021 for your 2020 tax return is called Form T777.
Overall, be reasonable with your new home office expenses and deductions. It’s easy to get super excited about a potential savings amount for next year’s tax season, but it’s always better to be careful than to end up owing more money than anticipated! If you have any questions, please call your accountant or tax advisor to make sure the information you receive is up-to-date and verified. We are also here to help answer any questions if you reach out via social media.
Dayna Holland, CPA, CA
CEO of Dayna Holland Ltd.
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