The massive push to get Canadians to work from home to prevent the spread of COVID-19 has put an already growing trend into hyper-drive. One small consolation for workers who are socially isolated – and an added benefit for those who have enjoyed their new reality – is the home-office related tax breaks.
The extent of the workplace migration to home offices is unprecedented, and tax professionals are working with the Canada Revenue Agency (CRA) for clarity. For now Denise Batac, partner at Crowe Soberman LLP’s tax group, advises Canadians who are new to the work-from-home experience to keep records of their work-related expenses.
“You want to keep track of all your utilities – electricity, heat, water,” she says.
For Canadians whose home is their principal place of business, expenses linked directly to the home office and a portion of general home expenses can be claimed as deductions on their tax returns. The portion that can be claimed as a deduction is based on the area devoted to the home office in proportion to the total space of the home. As an example, if a work space is one-fifth of the total space of a home, then 20 per cent of the expenses can be claimed.
For those working from home intermittently or for an undetermined length of time until it’s safe to go back to work, Ms. Batac cautions that home-office deductions can normally be claimed only if the home is used for at least half of the total work time.
“The work space has to be mainly where you do your work. That means more than 50 per cent of the time,” she says. “If you are an individual working every other day from home, you still don’t qualify.”
Ms. Batac says the more than 50-per-cent rule also extends to the taxation year, but under the current circumstances in which people could only be working from home for a portion of the year, the CRA will consider cases on an individual basis.
Regardless, she says documentation must be provided from employers through Form T2200: Declaration of Conditions of Employment.
“Your employer has to certify that you had to use your work space in your home for employment purposes,” she says.
Ms. Batac has one word of caution: Expenses that are reimbursed by the employer, such as internet service or office supplies, cannot be claimed.
For those who were already working from home for an employer during the 2019 taxation year, the tax-filing deadline has been extended to June 1 from April 30. They will have until Sept. 1 to pay any 2019 income taxes amounts owed with no interest or penalties.
The tax-filing deadline for self-employed Canadians working from home remains June 15 – for now. They can claim the same home-office expenses as employees working from a home office along with a portion of property taxes, house insurance, mortgage interest and depreciation.
Aaron Gillespie, partner at KPMG LLP’s enterprise tax department in Hamilton, Ont., says repairs and maintenance can also be claimed provided the work is directly related to the home office.
“Generally, if you’re doing some repairs and maintenance just to that space, you can deduct those fully because they relate fully to the space as opposed to the whole home,” he says, adding that common sense should prevail and that the CRA often picks up red flags for audits when people get greedy.
“There have been a number of court cases in which people have taken a portion of their landscaping, renovations and things of that nature. What has come out of some of those cases is the lack of connection between the expense and the income earning motivation” he says.
Mr. Gillespie says the CRA also raises red flags when home-office expenses are high in proportion to the income being generated.
“There’s a general condition that needs to be met that any expense was incurred for the nature of earning income. I would think that if your home-office expenses were 90 per cent of your income, that feels a little questionable,” he says.
In addition to home-office expenses, Canadians who use their own vehicles to generate income can deduct the work-related portion of costs – whether they work for themselves or an employer. Those expenses include repairs and maintenance, vehicle insurance, licensing fees, fuel, lease or depreciation for those who own their vehicle.
Mr. Gillespie says it’s essential that people claiming vehicle expenses document their usage and expenses in a log book.
“You need to be able to substantiate any of the claims you make. If the apportionment of your vehicle expenses is, for example, 60 per cent, you need to be able to support that. The way to support it is to maintain a log book that has individual entries of each business trip. What was the date? Where did you go to and from? What was the purpose of it? How many kilometres was it? You need to maintain that for the entire year,” he says.
“On top of that, you should take your odometer reading at the beginning of the year and the end of the year and subtract one from the other. That would give you the total kilometres you drove in the vehicle for the year,” he says.
For Canadians considering these deductions for the year ahead, CRA rules and regulations could change as the economic fallout from COVID-19 continues. So, go to the CRA’s website or speak with a tax expert for updates.