As the pandemic continued through 2021 many employees continued to work from home throughout the year. And, similarly to 2020, those workers may be entitled to claim a deduction on their 2021 tax return for home office expenses incurred.
As some of you may be aware, employees who work from home on regular basis have always been able to claim a portion of household expenses incurred (assuming required conditions are met). Doing so required the employee to obtain certification from the employer, calculate household expenses, determine the portion of house that is used exclusively for the home office, and to claim the attributable expenses on the personal return. Starting in 2020, the Canada Revenue Agency (CRA), has introduced a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that that flat rate method will continue to be allowed for both 2021 and 2022.
The flat rate method is very easy to calculate and support and is very popular exactly for these reasons. However, taxpayers are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2021 tax return.
Here are the conditions that need to be satisfied in order to claim a deduction for costs related to a work from home space using the detailed method:
- the employee worked from home during 2021 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); or
- the employee was required by their employer to work from home during 2021.
In addition, at least one of the following criteria must also be satisfied in order to claim work from home costs under the detailed method:
- the work at home space is where the individual mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during 2021; or
- the individual uses the workspace only to earn their employment income; they must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.
If these conditions are met, a range of costs may be deducted by the employee. More specifically, a salaried employee can claim costs such as rent, utilities costs like electricity, heating, water (or the portion of a condo fee attributable to such utilities costs), home maintenance, and minor repair costs and internet access (but not internet connection) fees. Please note that mortgage interest is not included in these costs.
The next step would be to determine the percentage of the home that is used for work purposes. Most frequently it is done based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the work space is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities.
If you are interested, you can find more information on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.
Please remember, the CRA has the right to ask the taxpayer to provide documentation and support for claims made using the detailed method.
There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain either a Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or Form T2200, Declaration of Conditions of Employment. On those forms, the employer must certify the work from home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such expenses incurred.
While the detailed method can create substantial deductions for employees who work from home, this methodology involves considerable record keeping and paperwork.
Should the taxpayer decide to use the simplified method, he/she must meet the following conditions:
- the employee worked from home during 2021 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); and
- the employee worked from home for more than 50% of the time for a period of at least four consecutive weeks during 2021.
In addition, the following criteria must both be satisfied:
- the employee is not claiming any employment expenses other than home office expenses; and
- the employer did not reimburse all of the employee’s home office expenses for the year; where the employer reimburses only a portion of such expenses, the employee may still make a claim under the flat rate method, assuming the other criteria are met.
A taxpayer who meets all of the criteria for using the flat rate method can claim $2 for each day they worked from home during the four-consecutive-week qualifying period. They can then claim $2 per day for any additional days of working from home during the year. The maximum deduction which can be claimed under this method is $500. There is no need to obtain a T2200 or a T2200S from the employer, and no requirement that the employee keep or provide receipts for any costs incurred.
There is no general rule of thumb which can be used to determine whether the flat rate method or the detailed method will give a better tax result — that determination can only be made where the available deduction is calculated under each method and a comparison made of the result.