Sean Hiebert, a High Net Worth Planner with TD Wealth, is a new dad. Like many of us, he and his wife are uprooted from their native work environments and navigating through a new work-at-home world, often with a tot hanging on their pantlegs. The couple doesn’t take this experience for granted since they are spending far more time with their 17-month-old boy than they could have imagined.
“We aren’t ever going to get this time back with him. It’s challenging when we’re trying to work and he needs attention, but everyday we see a change in him as he grows,” says Hiebert.
Like many families, the Hieberts are employees who are now working from home because of the COVID-19 pandemic, and they are running up some additional expenses. As a financial planner, Hiebert offers some perspective on whether we may be able to recoup some expenses incurred during this time period that we wouldn’t otherwise have to pay for under normal working conditions, if certain circumstances are met.
Hiebert says these expenses can be claimed when filing your 2020 taxes by using the Form T2200 “Declaration of Conditions of Employment,“ available on the Government of Canada website. Under the current CRA guidelines, an individual can deduct home office expenses if the conditions of their employment require that they mainly work from home. For those of us who find ourselves in this situation due to the pandemic, we may be eligible for a deduction only if we have been working from home for more than 50% (six months) of the calendar year. If you meet this criteria, or if the criteria changes in the future, here are some ideas to consider.
Hiebert notes that what you can claim (subject to meeting specific conditions in limited circumstances) is determined by your employment status, whether you are a salesperson on commission or — like most of us suddenly working from home — an employee.
What you need to know
Hiebert says that the CRA defines your home office as a “self-contained domestic establishment,” where you mainly work or a space dedicated solely to earning employment income.
For those of us who are employees working from home because of the COVID-19 pandemic, here are the details on how to qualify for deductions with a Form T2200:
- The expenses you incurred were as a result of fulfilling work for your employer.
- Your employer has not and will not reimburse you for these expenses, and you were required to pay for these expenses to carry out your work duties.
- Your employer has signed the T2200 form, confirming working at home is a condition of your employment.
- Your work space is where you principally (more than 50% — six months — of the calendar year) conduct your work, or…
- You only use the work space to earn your employment income, and you use it on a regular and continuous basis for client– or other meeting–related to your work.
Hiebert says the CRA no longer requires that the form be submitted as part of your annual filing, but it must be retained in your records should the CRA request proof that it was issued and certified by your employer.
What you can claim
If you usually work outside the home as an employee but now find yourself confined within it, you can deduct a portion of operating costs (that is, utilities such as heat and hydro), reasonable repairs or alterations to accommodate work or a work space, and supplies (desk items like pens, paper). If you fall into this category, you can also claim a reasonable portion of your rent.
Now, while we can’t deduct the whole cost of heating our homes, we have to do some math to reckon what is a “reasonable” portion that would represent working hours and office space, says Hiebert. As an example, if you pay $150 a month for natural gas and your home office or workspace takes up 7% of your overall home, it would be reasonable to allocate approximately 7% of that total (or $10.50) to your office space. Then you must prorate that figure based on how much time that space is used for your job.
Hiebert says people can make similar calculations for other bills, such as rent, electricity or gas that are needed to work from home.
For a cell phone plan, you might be able to deduct a portion of the bill provided that the cost of the plan is reasonable, that you can verify that the usage relates to work, and you use a reasonable approach to allocate what portion of the phone bill relates to work use.
What you can’t claim
Employees can’t claim a portion of their internet plan, mortgage or mortgage interest.
As well, Hiebert says if you need special equipment now that you find yourself working from home — like a headset for talking to colleagues or extra internet charges — you can try applying to your employer to pay the expense. Other expenses that are not eligible for deduction for salaried employees include property insurance, property taxes, or the depreciation on any home equipment used like home computers.
If you are a salesperson
People who work on sales commission may also claim reasonable rent, operating costs (utilities), and any repairs or alternations as they relate to a home office. In addition, they can also claim property taxes and property insurance costs.
Hiebert says that if someone has deductible expenses in excess of their employment income, they can only reduce their employment income to nil in the year the expenses were incurred, but they can carry forward the unclaimed portion of the expenses to the next year and claim a deduction against employment income from the same employer.
If you are a self-employed contractor
If you are a freelancer or consultant — but are not incorporated — the COVID-19 pandemic may have forced you out of an office where you are working and into your home, but tax-wise, your situation has not changed much. You can continue to claim business expenses on the T2125 Statement of Business of Professional Activities form but you may wish to add the proportional costs of utilities at home that you are using while you keep office hours.
Consider Tracking Your Home Office Expenses
He notes that everyone who is working from home and wishes to claim a deduction should consider a T2200 but also speak with their tax advisor to help ensure these claims are best suited to their individual situation. He says people should be sure that the requirement to work from home is a condition of their employment and discuss the completion of the T2200 with their employers, since having the employer sign the form affirming that you had to work from home is a condition to claiming deductions.
Lastly, Hiebert says people should consider tracking their work–from–home expenses in the event that CRA does release new guidance, or where you will meet the requirements discussed above.
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