Home Office Expenses and Reimbursements During COVID-19

Working from home during the COVID-19 pandemic? We wrote this guide so you're able to understand and act on the tax benefits available to you.

In the past, if you worked from home your employer could complete a form (T2200) certifying that this arrangement was required and that certain expenses not reimbursed by them could be claimed on your personal tax return.

While this sounds fair enough, it wasn't available to everyone and there were a few things missing to make it an easy process each year.

So what did the CRA do in 2020 to help you?

Recognizing that the pandemic required a large number of people to work from home, the Canada Revenue Agency (CRA) has released new benefits to employees across the country.

  1. LESS PAPERWORK/GREATER ELIGIBILITY - Employees are now eligible to claim home office expenses without needing to have worked substantially during the year at home, nor needing to have Form T2200 completed by their employer.
  2. MORE MONEY IN YOUR POCKET - Employers are also allowed to reimburse a maximum of $500 for home office equipment as a non-taxable benefit (tax free) to their employees (with a receipt).

Methods of Claiming Home Office Expenses in 2020

OPTION 1 - Temporary Flat Rate Method

The first option available to eligible employees for claiming home office expenses is the new temporary flat rate method.

Under this method, employees can claim home office expenses of $2 for each day of working from home in 2020 due to COVID-19, up to a maximum of $400 without the need to calculate the size of the work space or keep supporting documents (something required in the past).

Here are a few important points about this option: 

  • Employees are considered eligible if they worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020 due to COVID-19.
  • This option is currently only available in calendar year 2020.
  • It is available for employees claiming home office expenses only.
  • If any other forms of employment expenses are claimed, the detailed method below needs to be used.
OPTION 2 - Detailed Method

The second option is the new detailed method. The new detailed method does not specify a maximum amount and employees would be eligible to claim all of the home office expenses they paid while working from home due to COVID-19 provided they meet all of the CRA’s eligibility criteria listed below:

  • The employee worked from home in 2020 due to COVID-19 or their employer required them to work from home. If the employee was not required to work from home but was provided a choice to work at home because of COVID-19, the CRA has indicated they will consider that employee to have worked from home for the purposes of the new detailed method.
  • The employee was required to pay for expenses related to the work space in their home. Expenses reimbursed by the employer cannot be claimed.
  • The employee worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020.
  • The expenses are used directly in the employee’s work during the period.
  • The employee has a completed and signed Form T2200S (simplified form) or Form T2200 from their employer, and has supporting documents for all of the expenses claimed for the period.

Which option should you choose?
  • Flat Rate = If you spent less than $400 of eligible expenses (over anything your employer reimbursed), you'd like to keep things simple and you don't have any other types of employment expenses (like motor vehicle expenses).
  • Detailed Method = If the amount you spent of eligible expenses (over anything your employer reimbursed) when multiplied by the percentage of your home used for work is over $400 (ie. 300 sqft of your 3000 sq ft house was used for work and you spent $4500 = (300/3000) * 4500 = $450). While that can sound confusing (and is grossly simplified for illustration), it's important to realize this detailed method prorates what you spent based on how much of your home was used for work.

While this is overly simplistic (and assumes your employer is onboard with filling out forms), it gives you an idea of how to initially approach this. If you're a LiveCA client, you can always reach out to your Manager for a discussion.

What's an Eligible Expense?

A comprehensive list of expenses that can and cannot be claimed is available here.

In case you're wondering, here are some items you can't claim:

  • Blue light eye glasses
  • Mortgage interest
  • Principal mortgage payments
  • Home internet connection fees
  • Furniture
  • Capital expenses (replacing windows, flooring, furnace, etc)
  • Wall decorations
  • Modem rentals for your home internet

Forms, Forms and More Forms

On December 15, 2020 the CRA launched simplified forms (T2200S and T777S) and a home office expense claim calculator to assist with the calculations using either of the above methods.

The section below will outline which forms to use in each situation.

Form T2200S vs. Form T2200

Form T2200S (“Declaration of Conditions of Employment for Working at Home Due to COVID-19”) is specifically designed for employees who worked from home in 2020 due to COVID-19. The employer must complete and sign this form if the employee chooses to use the detailed method and is claiming home office expenses only. This form is currently only available in 2020. Employees using Form T2200S are required to fill out Form T777S which must be filed with their tax return.

Form T2200 (“Declaration of Conditions of Employment”) is required to be completed and signed by the employer if the employee chooses to use the detailed method and is claiming any other forms of employment expenses on top of home office expenses (like motor vehicle expenses). Employees using the Form T2200 are required to fill out Form T777 which must be filed with their tax return.

There is no difference between the two forms with respect to their impact on the employee’s personal tax return. The distinction lies on the type of employment expenses claimed on the forms.

In summary, fill out these forms in these situations: 

  • Option 1 - Flat rate = Employer has no forms; employee fills out Form T777S (option 1) and adds number to line 22900 on their T1.
  • Option 2 - Home office expenses only = Employer fills out T2200S; the employee fills out T777S (option 2) and files with their T1
  • Option 2 - Home office expenses + other expenses (such as motor vehicle) = Employer fills out T2200; the employee fills out T777 and files with their T1

Employer Reimbursement for Home Office Equipment

Believe it or not, everything up to this point related to the first bullet point above of the CRA creating LESS PAPERWORK [insert corny tax joke here about nothing being simple with the CRA].

This section below explains how the CRA is putting MORE MONEY IN YOUR POCKET.

In addition to the home office expense claim for employees above, the CRA announced employers may reimburse employees up to $500 for the purchase of personal computer equipment and home office furniture (e.g. office chair, desk, etc) to be able to work from home.

In the context of COVID-19, such reimbursement will not be considered taxable income to employees provided that the home office equipment and furniture are mainly for the benefit of the employer, meaning they are necessary for the employee to perform their duties of employment from home, and supporting receipts are presented to the employer.

This means that any amounts paid over $500 per employee are subject to being included in their taxable income (ie. if you're reimbursed $800 for a monitor, $500 is tax free and $300 would be classified as a taxable benefit).

Pre COVID-19, if an employee was provided an allowance for the purposes of acquiring home office equipment to work from home, this would be included in their taxable income for the year.

With these changes, home office expense claims are now simplified and more accessible to Canadian employees when completing their personal tax returns. There is no better time than now for both employers and employees to start putting together the applicable compliance requirements in preparation for the 2020 personal income tax return filings which open in March 2021.