Canada – Can I Deduct Home Office Expenses During COVID-19?Posted by Terrel Walkins on January 25th, 2021 As a result of the COVID-19 pandemic, many employers have been forced to lock down their offices, plants, and other business locations. To the extent possible, many employees are now working remotely from their homes. As outlined below, this may provide for a tax reduction opportunity for many Canadian employees in 2020. Qualifying Conditions
Note that with respect to the first condition, ‘principally’ is generally determined over the course of the full period of employment in the calendar year rather than just the part of the year the employee is required to work from home. In the current COVID-19 pandemic, if employees are only required to work from home for less than 50 percent of their time with the employer during the calendar year, they may not be able to deduct their home office expenses. Note that under the second condition, unlike the first condition, which permits occasional use of the workspace for other purposes by the employee or family members, the workspace must be used exclusively for work. The Canada Revenue Agency (“CRA”) takes a view that ‘meeting with customers or clients’ generally means a physical, face-to-face encounter of two or more people. However, the CRA recognizes that some informal Tax Court of Canada (“Tax Court”) decisions have held that this phrase may include meetings held by phone, although the CRA stresses that informal Tax Court decisions are not binding. Therefore, in the current COVID-19 pandemic, virtual meetings through Zoom or other software applications may not be counted for purposes of the second condition. However, this is subject to the CRA’s interpretation. Eligible Home Office Expenses In calculating the percentage of home expenses that are deductible, an employee should use a reasonable basis such as the square footage of the workspace area as a proportion of their total home. However, it may not always be appropriate to use a percentage to allocate a portion of the costs to an employee’s home office expense. As an example, if the expenses paid (such as cleaning materials) were to maintain a part of the house that was not used as a workspace, none of those expenses should be reported as a home office expense. On the other hand, if maintenance costs were incurred only for the workspace, then all or most of the expenses should be included as home office expenses. The amount of the home office expenses that an individual can deduct in a tax year is limited to the amount of employment income the individual received in the year. If the expenses exceed the employment income earned in the year, the employee can carry forward those expenses and deduct them in the following year against employment income received from the same employer. Supporting Documentation Employees have the responsibility to track each of their home office expenses. They must be able to produce corresponding receipts to support each expense should they be requested by the CRA. How to Report Employee Home Office Expenses If you would like to discuss your specific situation with us, please contact your Cardinal Point financial advisor at your earliest convenience. We wish you all a happy and healthy quarantine! Fast, reliable, and managed website hosting in Canada by Thought Media means your business will have peace of mind. Not only do we offer managed web hosting for Canadian businesses, but we also provide website maintenance and support, unlike most hosting companies. Like it? Share it!More by this author |