Due to the Covid-19 pandemic, many businesses have been forced to close their offices and business premises to their employees. Consequently, employees have been asked to work remotely from home. This has led many employees to wonder if they can deduct office expenses from their taxes. The answer to this question depends on certain conditions. Below we will outline the eligibility requirements and the required documentation to claim home office expenses as deductions and have them count towards your income.
The Canadian Income Tax Act (“ITA”) allows employees to claim a deduction on their tax return for employment expenses they are required to pay and for which they do not get reimbursed. These employment expenses can include office space expenses. However, to be entitled to claim home office space expenses, the employee must meet certain conditions.
Firstly, the employee must be required by their contract of employment, verbal or written, to maintain a home office that must meet one of the two following criteria:
1. the employee performs more than 50% of the duties of his employment
at his home office; or
2. the employee uses the home office exclusively to meet customers or other persons on a regular
and continuous basis in the course of employment.
At first glance, most employees forced to work from home due to the pandemic seem to meet the first condition. However, the Canada Revenue Agency (“CRA”) has historically applied the first condition over the entire taxation year. Thus, employees were required to perform 50% of their employment duties throughout an entire year at their home office. As a result, employees forced to work from home due to the pandemic would not be permitted to claim the deduction for home office space expenses.
Although CRA has not yet issued a formal statement regarding the home office deductions, the provincial government has responded much quicker. In light of the current economic climate and the extenuating circumstances surrounding COVID-19, Revenue Quebec has been allowing employees to deduct eligible home office expenses on the condition they meet the 50% requirement mentioned above. It is expected that CRA will employ a similar attitude to Revenue Quebec.
What are office space expenses?
An Eligible employee can be permitted to deduct a portion of the rent attributed to office space expenses. As a result, an employee who is a lessee may deduct a portion of the rent because her home is also required to be used as an office. However, the same cannot be said about a homeowner. A homeowning employee is limited in what they may claim as office space expense. They cannot deduct certain costs, such as mortgage interest, insurance, and property taxes. Nevertheless, a leasing and homeowning employee alike may deduct costs associated with gas, electricity, minor repairs, amongst other costs.
Furthermore, to determine the permitted deduction amount, other factors must be considered, notably the proportion of time the office space is used for work and how much space the office represents in the home. For the first factor to find application, the office space must be used for more than just work. If the home office space is used exclusively for work, this factor will not be considered.
Other deductible expenses
If an employee meets the condition(s) set under “Eligible Requirements”, he/she may be eligible to claim connected expenses such as supplies. These expenses can include stationery items, ink cartridges. However, any capital expenditures, such as office equipment, may not be deducted.
Additionally, in certain circumstances, employees may be eligible to deduct internet fees and cellular phone fees.
To deduct home office expenses from their tax return, employees must obtain proof from their employer. This proof is obtained by way of a completed T2200 CRA Form and its provincial equivalent.