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Home office expenses, automobile benefits and your 2020 personal tax return

By ATB Wealth 3 February 2021 8 min read

The COVID-19 pandemic required changes to the way many Albertans worked during the past year, with many individuals working from home for some portion of the 2020 year. These changes may also impact your 2020 personal tax return. In this article, we will focus on the options you may have with respect to claiming home office expenses.

 

Working from home and home office expenses

Employees that incur employment expenses, that are not reimbursed by their employer, may be able to claim a deduction on their return for such items. Normally, this requires that employees obtain Form T2200, Declaration of Conditions of Employment, from their employer. Simplified procedures are now in place that will allow more individuals to claim home office expenses for the 2020 tax year due to COVID-19.

In order to deduct home office expenses, one stipulation is generally that an employee is required by their employer to maintain a home office. The Canada Revenue Agency (CRA) has confirmed that, for the 2020 tax year, maintaining a home office does not need to be a condition of employment. Rather, even an employee that has chosen to work from home because of the pandemic will be eligible to claim home office expenses if they worked more than 50% of the time from home for at least four consecutive weeks.

 

How to determine your home office expense deduction

Employees may choose one of two methods to claim home office expenses: 

Temporary flat rate method Detailed method
Applies to: Applies to:
  • eligible employees working from home in 2020 due to the COVID-19 pandemic
  • eligible employees working from home in 2020 due to the COVID-19 pandemic
  • eligible employees required to work from home
With this method: With this method:
  • you can claim $2 for each day you worked from home in 2020 due to the COVID-19 pandemic, up to a maximum of $400
  • your employer is not required to complete and sign Form T2200
  • you are not required to keep documents to support your claim
  • you can claim the actual amounts you paid, supported by document
  • you must have a completed and signed Form T2200S / Form T2200 from your employer

Source: Government of Canada, Home office expenses for employees

Temporary flat rate method

This is a simple approach that allows employees to claim $2 per day for each day worked from home in 2020 due to COVID-19 up to a maximum of $400 per individual, and each individual employee per household that qualifies is able to make the claim. Under this method, employees are not required to obtain a T2200 from their employer, nor are they required to track expenses or calculate work vs. personal use. 

Eligibility criteria

To use this method to claim the home office expenses you incurred, you must meet all of the following conditions:

  • You worked from home in 2020 due to the COVID-19 pandemic
  • You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
  • You are only claiming home office expenses and are not claiming any other employment expenses
  • Your employer did not reimburse you for all of your home office expenses
  • Complete Form T777S, Statement of Employment Expenses for Working at Home Due to COVID‑19, and include the form with your 2020 income tax return 

Example

Samantha worked from home from April 1 to May 31, 2020, due to COVID-19. During these months, she worked exclusively from home and performed all the duties that she normally performed at her employer’s office. Samantha went back to the office full-time on June 1, 2020, but worked from home for five days each month for the rest of the year due to COVID-19 starting in August.

Because Samantha worked more than 50% of the time from home for a period of at least a month (4 consecutive weeks) in 2020 due to COVID-19, she is eligible to claim expenses related to her workspace in 2020. If Samantha chooses to use the temporary flat rate method, she can claim home office expenses for 66 days in 2020. This is the total number of days she worked from home in April and May 2020, plus the 5 days she worked from home each month between August and December 2020. Vacation days, sick days or any other days that an employee is on a leave of absence do not count. This would result in a tax deduction of $132.

 

Detailed method 

The detailed method is more complex than the temporary flat rate method and could require significantly more involved accounting record keeping. However, it could also result in a larger amount of expenses to be claimed.

Eligibility criteria

To claim the actual expenses you paid for working from your home, you must meet all of the following conditions:

  • One of the following applies:
    • You worked from home in 2020 due to the COVID-19 pandemic, or
    • Your employer required you to work from home (this does not have to be part of your employment contract and may be a written or verbal agreement)
  • You were required to pay for expenses related to the workspace in your home
  • One of the following applies:
    • Your workspace is where you mainly (more than 50% of the time) worked for a period of at least four consecutive weeks, or
    • You only use your workspace to earn employment income. You also have to use it regularly and continually for meeting clients, customers or other people while doing your work.
  • Your expenses are used directly in your work
  • One of the following applies:
    • You have a completed and signed copy of Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, from your employer, or
    • You have a completed and signed copy of Form T2200, Declaration of Conditions of Employment, from your employer 

* Note: You cannot claim any expenses that were or will be reimbursed by your employer.

* Keep a copy of Form T2200S or Form T2200, in case it is requested by the CRA.


Example 

If Samantha chooses to use the detailed method instead to claim home office expenses:

  • She can claim the expenses she paid for the period when she worked from home for at least a month (between April 1 and May 31, 2020) if she meets the other conditions.
  • She cannot claim home office expenses for the 25 days she worked from home between August and December 2020 because she did not work more than 50% of the time from home during that period.

 

It is important to note that individuals can only claim the portion of expenses that can be reasonably allocated to employment use. The CRA has issued a simplified form (T777S, Statement of Employment Expenses for Working at Home Due to COVID‑19) for calculating home office expenses in 2020, which employees must complete and submit with their 2020 personal income tax return, whether using the temporary flat rate or detailed method. The CRA’s website also offers a tool to help determine eligible expenses for 2020.


Detailed method - What can be claimed? 

If you choose the detailed method, you may also make claims for certain other expenses incurred. Employees who worked at home in 2020 due to COVID-19 and meet certain conditions may be eligible to deduct home office expenses such as home workspace, office supplies and other expenses such as employment use of a cell phone and long distance calls for employment purposes. 

There are many rules and provisions when determining which expenses are available to claim, differences for salaried employees versus employees earning commissions, as well as what amount of the expenses can be claimed proportionate to business vs. personal use. As these details are extensive and numerous, you are strongly encouraged to discuss your situation with your tax professional and review the details provided by CRA here

Some common home workspace expenses include:  

  • rent paid for a house or apartment where you live;
  • electricity, heat, water or the utilities portion of your condominium fees;
  • home internet access fees; and
  • maintenance (minor repairs, cleaning supplies, light bulbs, paint, etc.).
     

If you are a commission employee, you can also claim expenses that reasonably relate to earning commission income for the following:

  • property taxes;
  • home insurance; and
  • lease of a cell phone, computer, laptop, tablet, fax machine, etc. 
     

You cannot claim any of the following: 

  • capital cost allowance;
  • mortgage interest;
  • principal mortgage payments;
  • home internet connection fees or the portion of fees related to the lease of a modem/router;
  • capital expenses (replacing windows, flooring, furnace, etc.);
    office equipment (printer, fax machine, briefcase, laptop case, or bag, calculator, etc.);
  • monthly basic rate for a landline telephone;
  • cell phone connection, or license fees;
  • purchase of a cell phone, computer, laptop, tablet, fax machine, etc.;
  • computer accessories, (monitor, mouse, keyboard headset, microphone, speakers, webcam, router, etc.);
  • other electronics (television, smart speaker, voice assistant, etc.);
  • furniture (desk, chair, etc.)

As a final note, regardless of the amount of expenses you may be able to tally, only expenses up to the amount of employment income remaining after all other employment expenses have been deducted can be claimed. Meaning that you cannot use expenses to incur a loss or negative income.

 

Relief for employer-provided automobile benefits

For employees who are provided the use of a company vehicle, taxable benefits must be calculated for the portion that an employee uses the vehicle for personal use. These benefits are captured by the ‘standby charge’ and ‘operating expense benefit’ that are intended to reflect the employee’s benefit of having access to a vehicle that may be used for personal use and the benefit arising from the employer paying costs relating to the personal portion of automobile operating expenses, such as fuel, insurance and maintenance.

In 2020, the requirement to work from home resulted in many employees facing higher standby charge benefits than what they may have actually received. To address this, two relief measures were announced that aim to reduce the impact of limited business travel in 2020: 

  • Reduced Standby Charge: Employees can use their 2019 automobile usage to determine whether they are eligible for the reduced standby charge for 2020 and 2021.
  • Operating Expense Benefit: Employees can also use their 2019 automobile usage to determine whether they are eligible for the optional operating expense benefit calculation for 2020 and 2021.

 

For further information on other personal tax topics for the 2020 tax filing season, you may be interested in the following articles:

Your 2020 personal tax return: COVID-19 benefits and tax planning

Understanding your personal taxes in Alberta 

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