Home Office Expenses

COVID-19 | Home Office Expenses: What You Should Know

As most employees in Quebec started working from home in mid-March, many of them have been working from home for six months, and there is a prospect of claiming home office expenses for the 2020 tax season.

The below is gleaned from the law, several articles written on the subject and recent CRA announcements. It also assumes that the employee has not been reimbursed for the expenses below.

EMPLOYEES’ REQUIREMENT TO CLAIM HOME OFFICE EXPENSES

  1. The employer requires (this cannot be a choice) the employee to work from home and be able to show a written undertaking or a tacit agreement to that effect. Notices and emails to employees to stay home should be acceptable.
    • Many employers should have no issue proving that staff were required to work from home from on due to the pandemic.
    • Employers must indicate the requirement on Form T2200, box 10 (Quebec TP643) and estimate the percentage of work performed from home.  The estimate could vary for each employee, but perhaps estimates can be made for certain groups of employees if it varies per department.
  2. More than 50% of an employee’s time was spent working from home.
    • The time period seems to be the calendar year, although some opined that it could be for a shorter period.
    • Those still working from home past mid-September would have met the more than 50% requirement and would be able to account for 12 months of expenses X work portion %.
    • Those who have started working a few days in the office may still meet the 50% for the whole year test, but sometime later in the year.
    • Those not meeting the 50% test for the whole year may want to try for the expenses strictly for the period worked from home. There is a 1996 technical interpretation that made a comment regarding the reasonableness of that thought and recent news suggests this would work.
    • Hours worked can be used to determine the 50% threshold.
    • We have recently learned that the CRA and MRQ may take the position due to COVID-19 that the 50% test applies for the period of time worked at home as opposed to the entire calendar year.  Therefore many employees would claim the months during which they worked at home.  So we await further guidance from the CRA and MRQ for those who worked less than 50% of the year at home.

Important: Employers have to complete Form T2200 + TP643 for every employee, which is cumbersome to do and could be a disincentive for large employers.  CRA is proposing a shortened version of the T2200 and has recently issued a draft version for comments.  Hopefully, the CRA (and MRQ) will streamline the compliance process for employers.

Eligible expenses and limits

  1. What home expenses can be claimed on form T777 + Q59? It may not come to that much:
    • For all:  a portion of utilities (hydro, heating), minor maintenance, lighting accessories, and cleaning for the months in the period (12 months or less)  X  office space percentage of the home square footage  X  use of the office space for work and not personal during the period.
      • Example:  office space maybe 15% of total house footage and is used 80% of the time for work, then 12% of expenses can be claimed (i.e. 15% x 80% = 12%).
    • For renters: add rent to the expenses above
    • For property owners – it cannot include mortgage interest, insurance, nor property taxes.
    • For those earning commissions as reported on the T4/RL-1, insurance and property taxes can be included if you own the house.
  2. GST/QST rebates
    • If the employer is registered for the GST/QST, employees can claim the sales taxes embedded in the expenses claimed as a rebate by ticking the box at the top of Federal Schedule T777 (and Quebec schedule TP-59) in the personal tax returns. The rebate will be taxed in 2021 when received.
  3. Supplies, internet and cell phone (please consult CRA guide T4044) expenses (in addition to the home office):
    • Supplies consumed in working such as stationary, stamps, toner, ink cartridges, pens, staples, paper clips are deductible.
    • Assets such as computers, printers and calculators are not deductible.
    • Cell usage in minutes – identifiable to work is deductible. This can be obtained for calls but harder to prove for data.
    • The CRA would deny monthly landline and internet access fees. However, additional internet charges due to higher/faster usage or charges based on actual use for work requirements should be claimed as an expense.

We expect that the CRA and MRQ may make announcements on this measure in the future on how it applies where the employee worked from the office during some period in the calendar year. We will keep you informed and also remind you during the 2020 tax season.

Questions?

Do not hesitate to contact one of our advisors if you have any questions about home office expenses eligibility and calculation.

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2020-09-29

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