Home Office Expenses During the COVID-19 Pandemic

The hottest tax topic today is certainly home office expenses. With the COVID-19 pandemic requiring many employees to work from home, more taxpayers will be eligible to deduct expenses incurred from their home office. What are the particulars of this deduction?

Disclaimer: Much of the information presented below is preliminary. An updated article will be produced once we get confirmation from the CRA on some the proposed changes.

Basic Eligibility Criteria
In order to be able to claim deductible expenses for the home office, the employee has to meet one of the following criteria:

• part of his/her home must be the place where the individual principally (more than 50%) performs the duties of the office or employment, [ITA 8(13)(a)(i)] or
• part of his/her home is used exclusively during the period in respect of which the amount relates for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of the office or employment [ITA 8(13)(a)(ii)];

For the first criterion, it appears, as per the draft T2200 short form that the employee will be required to work from home for one or more periods of four continuous weeks in 2020 during the COVID-19 lockdown in order to meet this criterion.
For the second criterion, we also have no clear guidelines as to whether teleconferencing would be considered as “meeting customers”.

Deductible expenses (see below) cannot exceed employment income [ITA 8(13)(b)]. Any excess amount can be carried forward and claimed in a subsequent year [ITA 8(13)(b)].

Eligible Expenses
Eligible expenses include rent, electricity, heating, maintenance, telephone long distance charges, property taxes, and home insurance [ITA 8(1)(i)(iii) & IT352R2 par. 5]. Expenses related to ownership of a house, such as home insurance and property taxes are deductible for commission income employees only [IT352R2 par. 6]. Mortgage interest or capital cost allowance cannot be deducted regardless of the type of employee [IT352R2 par. 6].

These expenses can be only be claimed on the portion of the home dedicated to the home office, which is determined on a reasonable basis [IT352R2 par. 7].

Monthly internet fees are deductible for commission income employees [Technical Interpretation 2003-0022747] but are non-deductible for salaried employees [Technical Interpretation 9816945].
You must reduce any claim for these expenses by any non-taxable reimbursement received.

Allowances received by employees are considered a taxable benefit and added to employment income [ITA 6(1)(b)]. However, due to the pandemic, an allowance that was an amount not exceeding $500 for the acquisition of personal computer equipment, to enable the employee to perform their work immediately and primarily benefits the employer will be considered non-taxable [2020-0845431C6].

Administrative Requirements
In order to be eligible to claim home office expenses, the contract of employment must stipulate that the employee is required to work from home and pay for their own expenses [ITA 8(1)(f)(i) & 8(1)(i)(ii)]. However, in a recent CRA consultation with the Canada Chamber of Commerce, the CRA confirmed that the requirement to work from home does not need to be in writing. The requirement is satisfied by a "meeting of the minds" between the employer and employees that the work must be done from home (and that home office expenses are not reimbursed to the employees).

Under current legislation, the employer must certify, through a prescribed form, that the employee is required to work from home and pay for their own expenses. [ITA 8(10)]. This form is the T2200 Declaration of Conditions of Employment . As mentioned above, a draft T2200 short form has been proposed in order to alleviate the compliance burden on employers for home office expenses during the COVID-19 pandemic. The short form would consist of 4 questions:

Did this employee's contract of employment require them to pay their own home office expenses while carrying out their duties of employment?

Was this employee required to work from a work space in their home for one or more periods of four continuous weeks or more in 2020 during COVID-19?

Did this employee's contract of employment require them to pay for supplies that they used directly in their work?

• stationery, ink cartridge, postage, etc.
• use of a cell phone 

Did you or will you reimburse this employee for any home office expenses?