At the start of the COVID-19 pandemic, many employees were mandated to work from home to the extent possible and practical in order to abide by government restrictions and public health safety guidelines. Although initially anticipated as a short-term measure, many employees have now been working exclusively from home for a number of months.
In our recent SPARK articles, we discussed the possible tax deductions employees can claim for unreimbursed home office expenses incurred while working from home during the COVID-19 pandemic (November 6, 2020), as well as the relevant tax implications that employers should consider if providing employees with equipment and supplies to support their productivity while working from home (November 4, 2020 and July 13, 2020).
New CRA Guidance - Employee Home Office Expenses
On December 15, 2020, CRA released more specific and detailed guidance for the deduction of home office expenses by employees who have been working from home as a result of the COVID-19 pandemic. These new guidelines are intended to temporarily streamline the methods for claiming the deduction and simplify the process for both employees and employers for the 2020 personal taxation year.
The CRA has introduced two new temporary methods of deducting home office expenses in 2020: the temporary flat-rate method and the detailed method.
Temporary Flat-Rate Method
This method is intended to simplify the claim for work-space-in-the home expenses as well as certain office supply and phone expenses. Under this method, an eligible employee may claim $2 for each day worked from home, up to a maximum of $400 (200 working days) per individual. Note that both full-time and part-time work from home will qualify as a “work day at home”. Holidays, sick days and other leave days must be excluded.
An employee will be eligible to use the temporary flat-rate method if they meet the following criteria:
The employee worked more than 50% of the time for home for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic (including if the employee was given the choice by their employer to work from home due to COVID-19 pandemic);
The employee is not claiming any other employment expenses (i.e.: allowable motor vehicle expenses); and
The employee was not reimbursed for all of their home office expenses. If the employee was reimbursed for some home office expenses, they are still eligible to use the temporary flat rate method, provided the other eligibility criteria are met.
Employees will not be required to calculate the size of their work space or keep supporting documents (i.e.: invoices, receipts, etc.) in order to make this claim. In addition, an employer will not be required to complete and sign Form T2200 – Declaration of Conditions of Employment or the new T2200S – Declaration of Conditions of Employment for Working at Home Due to COVID-19 (discussed in the next section).
The deduction calculated using the temporary flat-rate method must be reported on T777S – Statement of Employment Expenses for Working at Home Due to COVID-19, which must be filed with the 2020 personal tax return.
Please visit CRA’s website for more details as well as examples of the application of the temporary flat-rate method of calculating the 2020 home office expense deduction.
Detailed Method
The detailed method of determining the 2020 home office expense deduction for employees working from home as a result of the COVID-19 pandemic is similar to the normal process for determining the work-space-in-the-home deduction.
Again, the employee must have worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic (including if the employee was given the choice by their employer to work from home due to COVID-19 pandemic).
In addition, the employee must meet the following criteria:
The employer must provide a completed and signed Form T2200S or Form T2200; and
Expenses claimed must be used directly in the work performed during the period of working from home due to the COVID-19 pandemic.
The Form T2200S is a new simplified version of the Form T2200 to be completed and signed by the employer for an eligible employee who chooses to use the detailed method. It can be used where the employee will only be claiming work-space-in-the home expenses as well as certain office supply and phone expenses.
If an employee pays for other employment expenses (i.e.: allowable motor vehicle expenses, parking, etc.), the employer must complete the standard Form T2200.
Previous versions of the standard Form T2200 included a certification that the employee’s “contract of employment” required them to use a portion of their home for employment duties. On January 18, 2021, CRA released a revised Form T2200, which clarifies that the working from home requirement does not need to be part of the employee’s contract of employment and may be a written or verbal agreement between the employer and employee.
Note that for 2020 only, CRA will accept an employer’s electronic signature on Form T2200S or Form T2200.
There is generally no change to the type of deductible home office expenses that can be claimed by an eligible employee. Examples of deductible home office expenses that can be claimed by an eligible employee may include a portion of utilities (i.e. heat, electricity, water, home internet access fees), rent, and other maintenance costs related to the home office. In addition, employees earning commission income may also be entitled to claim a portion of property taxes and insurance costs. (Note: mortgage interest is not a deductible home office expense for employees.)
The amount that can be deducted for home office expenses cannot create a loss from employment to be offset against other types of income. However, home office expenses that cannot be claimed in a year due to this limitation can be deducted in the following year to reduce net income from the same employer.
The CRA has provided a useful calculator to assist in determining the home office deduction to be claimed either by using the temporary flat-rate method or the detailed method. For an employee using the detailed method, the calculator provides assistance in determining the percentage of employment use of a home work space. For instance, if the work space is a shared space in the home (i.e.: dining room table), the calculator provides an example how to compute the employment use percentage of that work space based on the size of the work space compared to the entire finished area of the home and the number of hours per week that the work space is used.
Additional guidance has also been released with respect to the specific office supplies and phone expenses that may be claimed as employment expenses. Office supplies that may be deductible include items that are “used up” while directly performing employment duties. Some examples of these office supplies include ink cartridges, pens or pencils, printer paper, etc.
With respect to cellular phone expenses, a portion of the cost of a basic service plan may be deductible if the cost of the plan is reasonable and can be practically apportioned between employment and personal use. In addition, the employee must be able to identify the cellular minutes or data consumed directly while performing employment duties. For land-line phone expenses, only the cost of long-distance phone calls made for employment purposes is deductible.
Please visit the CRA website for a list of common home office supplies as well as criteria for claiming cellular phone and land-line phone expenses.
Note that no capital cost allowance (depreciation) is permitted for capital items such as computers, office equipment or furniture in any employment expense calculation.
Where the employee will only be claiming work-space-in-the-home expenses as well as certain office supply and phone expenses, the deduction may be reported on Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19, which must be filed with the 2020 personal tax return.
Where the employee is also claiming other employment expenses (i.e.: allowable motor vehicle expenses, parking, etc.), the standard Form T777 – Statement of Employment Expenses must be completed and filed with the 2020 personal tax return to report all employment expenses.
Finally, where an employee uses the detailed method of calculating and claiming employment expenses, Form T2200S/T2200 and all supporting documentation and receipts must be retained for a period of at least 6 years
Please visit CRA’s website for more details as well as examples of the application of the detailed method of calculating the 2020 home office expense deduction.
CRA has also published a Frequently Asked Questions document to address the deduction of home office expenses during 2020.
New CRA Guidance - Employer-Provided Benefits and Allowances During the COVID-19 Pandemic
On December 15, 2020, CRA also released more formal guidance with respect to the temporarily adopted positions for employer-provided benefits during the COVID-19 pandemic. These temporary positions specifically pertain to commuting and home office costs and are effective from March 15, 2020 to December 31, 2020.
Commuting Costs (including parking)
Generally, the cost of travel (including parking) between an employee’s home and a regular place of employment are considered to be personal expenses. Accordingly, where an employer pays for, reimburses or provides an allowance for such travel expenses or provides an employee with a motor vehicle that is used for such travel, the employee will be considered to have received a taxable benefit.
CRA has addressed the situation where an employee continued to perform their employment duties at their regular place of employment during the COVID-19 pandemic and may have incurred additional costs to minimize their risk of exposure (i.e.: avoiding public transit). In this situation, CRA has confirmed that it will not consider an employee to receive a taxable benefit where their employer pays for, reimburses, or provides a reasonable allowance for the additional commuting costs incurred by the employee that are over and above their normal commuting costs. This position also applies to the situation where an employer provides a motor vehicle to the employee for such travel, provided the employee did not normally use an employer-provided motor vehicle prior to the COVID-19 pandemic.
CRA has also addressed the situation where an employee performed their employment duties from home because their regular place of employment was closed, but was required to travel to their regular place of employment in order to pick up equipment to enable them to work from home. In this situation, CRA has confirmed that it will not consider an employee to receive a taxable benefit where their employer pays for, reimburses, or provides a reasonable allowance for normal or additional commuting costs incurred by the employee to travel to their regular place of employment for any purpose that enables them to perform their employment duties from home. Again, this position also applies where an employer has provided a motor vehicle for this purpose. In addition, where the regular place of employment is closed due to the COVID-19 pandemic, CRA will not consider the cost of an employer-provided parking space to be taxable benefit during this time.
In both situations, the employer and employee are expected to maintain appropriate records to demonstrate that any allowances provided are reasonable in relation to the commuting costs incurred by the employee (i.e.: mileage logbook).
Home Office Equipment
CRA has confirmed its previously issued guidance with respect to employer reimbursements of an employee’s purchase of computer or other home office equipment (i.e. desks, chairs) to enable them to carry out their employment duties at home during the COVID-19 pandemic.
Consistent with the previous guidance, in order to maintain the non-taxable status of the reimbursements, an employee must submit invoices to their employer to support the claim.
The CRA also reinforced that the $500 reimbursement amount is in respect of each employee rather than each piece of computer or office equipment that an employee may purchase. Any amounts paid by an employer in excess of $500 must still be included as a taxable benefit to the employee. For example if an employee is reimbursed $400 for the purchase of a computer and $200 for the purchase of an office chair, the employer must include $100 as a taxable benefit in the income of the employee.
Cellular phone and Internet Services
CRA has advised that it will use its existing policies which recognize that an employer may pay for or reimburse the cost of an employee’s cellular phone service plan, or internet service at home to help carry out their employment duties. Generally, CRA does not consider the employee to have received a taxable benefit for the cost of this service used for employment purposes.
If the employee uses the cellular phone or internet service in part for personal purposes, the fair market value (FMV) of the personal use portion must be included in the employee’s income as a taxable benefit. The employer is responsible for determining the percentage of employment use and the FMV.
CRA does not consider the employee’s personal use of a cellular phone service plan to be a taxable benefit if all of the following apply:
The plan’s cost is reasonable;
The plan is a basic plan with a fixed cost; and
The employee’s personal use of the service does not result in charges that are more than the basic plan cost.
Note that an allowance provided to an employee for cellular phone or internet services must be included in the income of the employee.
For more details on employer-provided benefits and allowances during the COVID-19 pandemic, please refer to the December 15, 2020 Canada Revenue Agency Backgrounder.
For further guidance on the impact of COVID-19 on your specific tax situation, please contact your Shimmerman Penn advisor.
