UPDATED: Employee Home Expenses – Federal Government Fall Economic Statement 2020

Updated February 2, 2021

In response to COVID-19, many employers have adopted and/or extended their work-from-home policies to continue with “business as usual.” In light of the renewed restrictions announced by the Government of Alberta on December 8, 2020 (as we reported on here), work-from-home arrangements will likely be a more common feature for many employees in the near future. 

Work-form-home arrangements raise the question from employees as to what, if anything, they may deduct for tax purposes as a result of working remotely. They also raise corresponding tax questions from employers as to their responsibilities, if any.

The McLennan Ross Tax Group discussed employee expenses, allowances, and reimbursements in a detailed article here.

To summarize, there were several tests that had to be met, one of being that the home office had to be where the employee “principally performs the duties of the office or employment” (meaning the employee worked in the home office for more than 50% of his or her work – i.e. the 50% time requirement) or the home office had to be used exclusively for work purposes and used to regularly meet with clients. This made deducting home office expenses impossible in many circumstances.

Thankfully, December 15th, 2020, the CRA announced they would relax the 50% time requirement for 2020. Specifically, employees who worked from home more than 50% of the time over a period of at least 4 consecutive weeks in 2020 due to COVID-19 will now be eligible to claim the home office expenses deduction for 2020.

The Federal Government also announced that a “simplified method” will be available for employees to claim up to $400 in home office expenses without the necessity of tracking or reporting the details of those expenses.

In order to be eligible for the simplified method of claiming home office expenses (up to $400), the employee must:

  1. have worked from home in 2020 due to the COVID-19 pandemic or the employer otherwise required the employee to work from home;
  2. have worked for more than 50% of the time from home over a period of at least 4 consecutive weeks in 2020;
  3. complete Form T777S and attach it to the personal tax return;
  4. only be claiming home office expenses, not any other employment expenses; and
  5. have incurred the expenses directly in relation to the employee’s work during the applicable period.

Under the simplified or “temporary flat rate” method, the employee can claim a deduction on their personal tax return of $2 per day for each day worked from home in 2020 due to the COVID-19 pandemic, up to $400. When counting the days worked from home, it includes days worked full time or part time hours but excludes days off, vacation days, sick leave days and any other leave or absences.

Note:

  • With the simplified method, employers do not have to provide T2200S or any other forms to employees.
  • The simplified method is intended for employees with “modest [home office] expenses”. The normal process (“detailed method”) for claiming employee expenses is still available to employees who qualify. Particularly, employees who have worked fully from home for at least 50% of this year and have a dedicated work space in their home. Employees with significant employment expenses should consider using the detailed method as their eligible expenses may exceed the $400 claimable under the simplified method.
  • The simplified method only applies for home office expenses, not for all types of employee expenses. If you have other employment expenses, you will need to use the detailed method. See here for a list of home office expenses.
  • For either the simplified method or the detailed method, an employee may qualify to claim home office expenses in 2020 if they worked for than 50% of the time from home over a period of 4 consecutive weeks due to COVID-19. This shortens the required “qualifying period” that is required in the longstanding and normal rules.[1] The CRA has also released a simplified T2200S form for employers to sign if the detailed method is being used.
  • See here for the updated FAQ and the How To page.

Finally, it is also worth noting the CRA also recently indicated that, in light of the COVID-19 pandemic, up to $500 of the cost of a computer or office furniture may be reimbursed by an employer to an employee as a non-taxable benefit. Employers are encouraged to retain the invoices provided by employees for these reimbursements.

If you have any questions related to your workplace or for claimable tax deductions, the McLennan Ross Tax Group and Labour and Employment Group would be happy to assist you. Please contact our office.

[1] “Employees who worked from home more than 50% of the time over a period of a least four consecutive weeks in 2020 due to COVID-19 will now be eligible to claim the home office expenses deduction for 2020. The use of a shorter qualifying period will ensure that more employees can claim the deduction than would otherwise have been possible under longstanding practice.” </www.canada.ca/en/revenue-agency/news/2020/12/introducing-a-simplified-process-for-claiming-the-home-office-expenses-for-canadians-working-from-home-due-to-the-covid-19-pandemic.html.