This blog was first published on Realtor.ca
If you are reading this article while sitting at a kitchen table that has been transformed into a work space, then this is a tax tip you need to hear. One of the many changes caused by the Coronavirus pandemic was an unprecedented shift to work-from-home arrangements. Some of us were able to make this a seamless transition but for others it has meant cramped work spaces, cluttered lives and additional expenses. I'm here today to explain how you can turn the COVID-19 work-from-home experience into a much-needed tax deduction on this year's tax return.
In the past, the Canada Revenue Agency has only allowed a select few Canadians to claim home office expenses on their taxes. These taxpayers were required to meet strict criteria including a dedicated work space, proof of expenses and a Declaration of Conditions of Employment Form (provided by their employer). This method of claiming home office expenses is still available this year and is accurately named the "Detailed Method".
In response to the mass migration into working from home, the Government of Canada introduced a new tax credit for Canadians seeking to claim home office expenses. This new method, dubbed the "Simplified Method", aims to make claiming these expenses much more accessible and streamlined for employees forced out of the office by COVID-19. The maximum claim amount for the simplified method is $400 for any individual who worked more than 50% at home for at least four consecutive weeks of 2020. Canadians can claim $2 for each day worked at home to the maximum of $400. Although you do not need the Declaration of Conditions of Employment to claim this $400 amount, there are still some criteria that you must satisfy to be eligible.
The following conditions must be met in order to claim the simplified method on your taxes:
You worked from home due to the COVID-19 pandemic
You were not reimbursed for any work-from-home expenses
You are not claiming any other type of employment expenses
How to tell which method is best for you:
For Canadians who have a dedicated workspace in their home and incurred significant expenses due to their work-from-home arrangement, the detailed method may prove to be the better option. Since the detailed method allows you to claim the actual expenses (a
list of allowable expenses can be found at the bottom of this article) you may be able to get a deduction larger than the $400 simplified method. For employees claiming home office expenses and other employment expenses, you will need to calculate your allowable expenses using the T777 Form. If you are only claiming home office expenses, you will use the T777S Form (option 2) to calculate your allowable expense amount. Once you have calculated your expenses and identified that they exceed $400, you will need to request a Declaration of Conditions of Employment Form from your employer. This form will be kept in your records and is proof that your employer required you to incur these additional expenses. Now I know that sounds confusing, so let's recap. If you have a dedicated work space, you have receipts to document your expenses, AND you have a Declaration of Conditions of Employment filled out from your employer, you may be eligible to claim more than $400 in home office expenses.
If you do not have a dedicated space for your home office or you have minimal documented office expenses, the simplified method will serve as an easy way to claim your deduction this year. Both home owners and renters are allowed to use this simplified method and filing it on your taxes is as easy as filling out option 1 on the new T777S Form that CRA created. Again, the maximum deduction you can claim is $400 for this method.
The Coronavirus has changed almost every aspect of our lives and the way we file our taxes in certainly no exception. Working from home has been a new and challenging experience for most of us. I hope this short article can serve as a simple guide this tax season. As we continue to do our part to end the COVID-19 pandemic, let us not forget that if we need help, we should ask for it. If you have questions about your tax situation this year, please contact an experienced professional that you trust.
Here is a list of allowable expenses you can claim when using the detailed method:
electricity
heat
water
utilities portion (electricity, heat, and water) of your condominium fees
home internet access fees
maintenance and minor repair costs
rent paid for a house or apartment where you live
Commission Employees (but not salaried employees) can also claim:
home insurance
property taxes
lease of a cell phone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning commission income
The following expenses can NOT be claimed:
mortgage interest
principal mortgage payments
home internet connection fees
furniture
capital expenses (replacing windows, flooring, furnace, etc)
wall decorations
The information discussed in this article should not be taken as financial or legal advice. This article is for informational purposes only.
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