February 19, 2021 by David Christianson
The current tax season starts in earnest February 22nd, the first day on which the Canada Revenue Agency (CRA) will start accepting electronically filed income tax returns. As you probably know, some tax slips are in the mail or available electronically already.
If you filed a paper return last year, expect a paper filing kit in the mail. CRA has announced they’ll start mailing these February 19.
Things could be very interesting for a lot of taxpayers this year. A significant temporary measure affecting many employees will be claiming home office expenses as a result of working from home.
Here are the details you need to know.
This will be a first-time claim for many people. You will be eligible if you worked from home more than 50% of the time for any period of four consecutive weeks in 2020 at the request of your employer, due to COVID.
Special for 2020 is a simplified method of claiming employment expenses, which is normally a very complicated process. If you are satisfied with a maximum total claim of $400 (based on $2 for each day worked from home), simply complete Option 1 - Temporary flat rate method on the new Form T777S, stating the total number of days you worked from home and you’re done. The maximum claim is reached if you worked 200 days from home.
If two taxpayers worked from the same home, each can file a separate claim for $2 per day up to the $400 maximum. This is a more generous claim than might first appear, as we will see.
This T777S form also has Option 2, the familiar Detailed method, so look at that as well to see if you might have a larger claim by spending an hour or two on this. It provides a list of expenses for which employees can claim a small portion (rent, utilities, minor house maintenance and upkeep, Internet access, office supplies, employment use of cell phone, and business long-distance) and the limitations. Your claim can only be for the business-use portion of any expense.
Commission salespeople may also claim a portion of property taxes, home insurance and equipment leases that relate directly to employment income. No employees can claim mortgage interest costs or depreciation on equipment.
In 2020, employers could reimburse employees up to $500 for the purchase of office equipment, so hopefully such costs were already covered.
For a guideline, the $400 claim is the equivalent of being able to claim 3% of total home expenses of $13,000. Why do I use 3%?
Your claimable portion may be very small. First, you divide the hours worked by the total hours in the week (i.e. 40÷168 = 23.8%), then you further divide the expenses by the percentage area you used for work divided by your entire home area. If your work room is 12% of your total house, for instance, your claim is for only 12% of 23.8% or 2.86% of the total expenses.
But if your workspace is also used as a dining room or bedroom, for example, your claim is reduced even further. Only the actual business use is eligible.
To make this claim, you will also need to have your employer complete a T2200 Declaration of Conditions of Employment form, specifying that you are required to pay these expenses as a condition of employment. You will also need to keep all your receipts and be ready to defend them.
It seems to me that many employees will be better off with the temporary flat rate method and I know many who will be grateful for it.
Keep glued to this space for more tax tips over the next few weeks.
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Dollars and Sense is meant as an introduction to this topic and should not in any way be construed as a replacement for personalized professional advice.
Please consult legal, tax, insurance and investment experts for advice on your unique situation.
David Christianson, BA, CFP, R.F.P., TEP, CIM is recipient of the FP Canada™ Fellow (FCFP) Distinction, and repeatedly named a Top 50 Financial Advisor in Canada. He is a Senior Wealth Advisor & Portfolio Manager with Christianson Wealth Advisors at National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.