You'll find out what's changed and what needs to be done for the employees to be able to claim home office expenses.
There is also a detailed explanation on this topic on the CRA website. It’s surprisingly quite good and easy to follow!
Home Office Expense Topics Covered
What is new with home office expense claims for employees?
Temporary flat rate home office claim (simple version, no forms needed)
Detailed method (employer form T2200 or T2200s required)
Comparing the methods - which home office deduction should be used?
What can employees deduct for home office expenses?
What's New with Home Office Deductions for Employees?
The year 2020 will be remembered as a big year for remote work and workers who work from home. The Canada Revenue Agency (CRA) has revised its eligibility criteria and added new ways for workers to claim home office expenses.
Temporary Simplified Flat Rate Home Office Claim
The addition of a simplified flat rate method for claiming home office expenditures is another major change for 2020. Employees can now claim home office expenses using a simplified flat rate method, even if their employer does not provide a form. Employees can deduct a flat rate of $2 per day that they worked from home up to a maximum of $400. They simply multiply the number of days they worked from home by $2. No documentation needs to be prepared or submitted for this claim.
ELIGIBILITY REQUIREMENTS HAVE CHANGED
Employees seeking home office cost deductions have new eligibility criteria for 2020. The following are some of the changes in general terms:
No form necessary - The new “temporary flat rate” can be used even without an employer preparing a form T2200 or T2200S.
Contractual requirement not needed - Employees are no longer required to have an employment contract that states that they must operate from home. In 2020, verbal arrangements are sufficient to claim home office expenses.
Frequency of home office use - In the past, the conditions for using a home office were very strict. In 2020, this was relaxed, and there are now more ways to apply. More information on the two methods can be found in the sections below.
We'll go through the new eligibility criteria for the two different claiming methods in more depth below (detailed method and temporary flat rate method).
This CRA created Infographic is also quite helpful - way to go CRA!
ELIGIBILITY CRITERIA - SIMPLIFIED FLAT RATE METHOD
The simplified method's eligibility criteria are less strict than the comprehensive method. All of the following questions must be responded yes by employees:
The employee worked from home in 2020 due to the COVID-19 pandemic (either they were required to work from home, or provided with the choice of working from home)
The employee’s home office was their principal place of employment (they work there more than 50% of the time) for at least four consecutive weeks in 2020
The employee is only claiming home office expenses and are not claiming any other employment expenses (such as vehicle or travel)
The employer did not reimburse the employee for all of their home office expenses (it’s ok if the employer reimbursed some, but not all)
This approach does not necessitate the completion of any forms. It's a convenient and straightforward solution for workers who have had to work from home for at least four weeks due to the COVID-19 pandemic.
NEW SIMPLIFIED FORM TO USE (FORM T2200S)
Employers must fill out and include a form to their employees by using the detailed method to claim home office expenses.
There are now two forms that can be used:
T2200 Declaration of Conditions of Employment
This form was in use prior to 2020 and can be used when workers are expected to pay more than one type of work expense. One of the expense types for which this form is used is for a home office.
It may also be used to deduct work-related expenditures including travel, car, and 'other.'
T2200S Declaration of Conditions of Employment for Working at Home Due to Covid-19
Due to COVID-19, this new form is only for workers working from home in 2020. It doesn’t include any information about other employment expense types.
It's less complicated than the T2200, so it'll be easier to use if your workers just need to claim home office expenses.
Detailed Method for Home Office Expenses
For years, there has been a detailed method for claiming home office expenses. It helps workers who are entitled to deduct specific expenditures incurred when operating from home.
The eligibility criteria for 2020 have been updated to make it easier for workers who worked from home due to the COVID-19 pandemic to apply.
NEW ELIGIBILITY CRITERIA - DETAILED METHOD
Employees will be able to qualify in new ways beginning in 2020. The key difference is that workers will only be considered qualified if they can answer yes to all of the following questions:
The employee worked from home in 2020 due to the COVID-19 pandemic OR their employer required them to work from home (no written contract needed, written or verbal agreement OK)
The employee was required to pay for their own expenses while carrying out duties of employment (no specific requirement for this to be in the employment contract)
The employee’s home office was their principal place of employment (they work there more than 50% of the time) for at least four consecutive weeks OR the home office space is used exclusively for employment purposes and is used on a regular basis for meeting clients, customers or patients.
The employer has provided and signed a copy of form T2200 OR form T2200S.
If the employee could answer yes to all of those questions, then the employee's home office expenditures could be claimed provided had they already been reimbursed.
The key changes are that there is no longer a requirement to prove that a home office was needed by an employment contract, and workers can qualify if they worked from home 50% or more for a duration of 4 weeks due to the COVID-19 pandemic.
The CRA comes to the rescue with a helpful chart that explains what workers should deduct.
Employees who are paid on commission have the right to claim a few more costs than those who are not paid on commission, as seen in the second column.
Comparing the Home Office Expense Methods
We've gotten the gist of it now, but it's still unclear which method employers and employees should employ. To figure out which alternative to use, try this two-step process.
1. Check eligibility requirements
The first step is to make sure you meet both of the eligibility criteria. If workers are only qualified for one method, that's your answer.
Continue to the next phase if workers are qualified for either method.
2. Check which method is most beneficial
If employees are eligible for either method, then it’s a good idea to determine which method could benefit them the most.
This can get a little bit tricky because the detailed method uses actual expenses incurred multiplied by an “employment use” percentage. There are quite a few “if this, then that” type of statements that make up the calculation, but thankfully the CRA has created a calculator to help. To compare eligible expense amounts under the detailed method and flat rate method you can ask your employee(s) to use CRA calculator. The result will allow you to compare the deduction amounts under each method. If you need further assistance, contact your nearest accounting firm in Toronto.