CRA introduces simplified process for claiming home office expenses during COVID

The Canada Revenue Agency has introduced a simplified process for claiming home office expenses for employees working from home due to the COVID-19 pandemic.

“A new temporary flat rate method will allow eligible employees to claim a deduction of $2 for each day they worked at home in that period, plus any other days they worked from home in 2020 due to COVID-19 up to a maximum of $400,” the CRA announced in a news release on Dec. 15.

“Under this new method, employees will not have to get Form T2200 or Form T2200S completed and signed by their employer.”

Previously, employees had to work primarily from home and have a space in which to meet clients in order to deduct home office expenses from their income taxes, says Derek de Gannes, senior director of private client services at RSM Canada LLP, an audit, tax and consulting firm.

Yet due to the pandemic, employees are working from home but not necessarily meeting clients there. These new working conditions spurred the CRA to undertake a study to update its home office expense rules for employees and employers alike.

“What we saw on Tuesday was the result of that study,” says de Gannes. Under the new procedures there will be a temporary, flat-rate method for deducting home office expenses, and a modification of the old method for claiming expenses, he says.

Under the flat-rate method, someone who has worked from home more than 50 per cent of the time, for at least four consecutive weeks in 2020, can deduct up to $400 on their personal tax return. Individuals who do that are not allowed to deduct any expenses they have actually incurred; to do so they would need to choose the modified, detailed method of claiming deductions, using a simplified Form T2200 that has been made available to employers and employees and which allows the employer to certify the employee’s working conditions.

The Canada Revenue Agency has also put a calculator on its website to help employees determine the best method for them, de Gannes adds.

Prior to these changes, Form T2200 included many more questions that the employer had to answer and complete, and the employee had to sign, he says. “That form [now T2200S: Declaration of Conditions of Employment for Working at Home Due to COVID-19] has been simplified quite a bit,” he says. “It is still required, but it’s easier for the employers to complete, and it’s needed for those employees who want to use the detailed method to calculate their home office expenses,” who would then calculate for themselves the amount they are entitled to deduct.

Although employees are not required to submit receipts, “if that return was ever brought up for review the employee would have to prove they worked more than 50 per cent of the time from home, for at least four consecutive weeks.”

The CRA has also expanded the list of eligible expenses that can be claimed to include home internet access fees. Commission employees have additional expenses they can deduct, de Gannes says.

Early on in 2020 there were other announcements made to provide relief, he adds, such as employers being permitted to provide a tax-free allowance of up to $500 to employees spending money on equipment to set up a home office, e.g., computer monitors and keyboards, desks and desk chairs. Typically, says de Gannes, the acquisition of those items would be a taxable benefit to an employee rather than a tax-free allowance.

The change in the reporting of home office expenses announced on Dec. 15 “concludes all the changes that the Canada Revenue Agency has introduced in 2020 for COVID relief,” de Gannes says. “I am really encouraged by our Canada Revenue Agency moving as quickly as they have on this matter; while it may be a small number on each person's tax return, this reinterpretation and revisiting of rules will affect so, so many.”