How to deduct home office expenses

Flat-rate or detailed, make sure you get the tax break

The Covid-19 pandemic and associated government-mandated lockdowns and “stay-at-home” orders have resulted in a great deal of financial stress for individuals, families, and small businesses. So this tax season, it’s more important than ever to make sure you take adavantage of every tax break you are entitled to. For many people who have had to work remotely from home, that begins with a look at how you might deduct home office expenses, which in some cases can really add up.

According to the Canada Revenue Agency (CRA), if you are an employee and because of Covid-19 restrictions had to work from home more than 50% of the time for at least four consecutive weeks in 2020, you may be able to claim the home office expenses deduction on your 2020 tax return.

Sounds simple, doesn’t it? Naturally, because it is the government, there are complications. In fact, you can choose either one of two methods for calculating your home office expenses, but not both.

1. Temporary flat rate method

This is a new rule, and it is temporary, effective only for the 2020 tax year (so far). The flat rate method allows eligible employees to claim a deduction of $2 for each day they worked at home in that four-week period, plus any other days they worked from due to Covid-19 up to a maximum of 200 working days ($400). It’s a simplified flat-rate method because you do not have to file Form T2200 or Form T2200S, which must be completed and signed by your employer if you use the more detailed method.

Eligibility. Each individual working from home who meets the eligibility criteria can use the flat rate method to calculate home office expenses. Tax tip: This means multiple people working from the same home can each make a claim. To use this method to claim the home office expenses you paid, you must meet all of the following conditions:

You worked from home in 2020 due to the Covid-19 pandemic.
You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020.
You are only claiming home office expenses and are not claiming any other employment expenses on line 22900 of your T1 return.
Your employer did not reimburse you for all of your home office expenses.

If you are using this method, you do not need to determine your expenses to calculate your claim for home office expenses in 2020. To make the claim use “Option 1 – Temporary flat rate method” on Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19 to enter these amounts and attach it to your 2020 income tax return.

This method can only be used for the 2020 tax year.

2. Detailed method for calculating home office expenses

You can use this method to claim the home office expenses you paid for the period that you worked from home if you think your expenses might exceed what you’re eligible for using the flat-rate method.

Eligibility. You must meet all of the following criteria to be eligible to claim a deduction for home office expenses:

You worked from home in 2020 due to Covid-19 or your employer required you to work from home.
You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020.
You must complete “Option 2 – Detailed method” on Form T777S (if you are only claiming home office expenses on line 22900) or Form T777 (if you are claiming additional expenses on line 22900 like motor vehicle, accounting fees, tools, and parking).
You have a completed and signed Form T2200S or Form T2200 from your employer.

You will need to determine the percentage of your home that you use as a work space to calculate your claim for work-space-in-the-home expenses. The CRA has an online calculator designed to help you calculate eligible home office expenses under the detailed method. All salaried employees and commission employees can claim the following home office expenses:

Electricity
Heat
Water
Utilities portion (electricity, heat, and water) of your condominium fees
Home internet access fees (the reasonable monthly cost of the plan)
Maintenance and minor repair costs
Rent paid for a house or apartment where you live.
Amounts your employer requires you to pay for office supplies or certain phone expenses.

If you’re thinking that the world is now your oyster as far as deductions go, think again. Note that you cannot claim mortgage interest or principal payments, home internet connection fees (e.g., installation, registration, modem rental), furniture, capital expenses (replacing windows, flooring, furnace, etc), or wall decorations.

If you’ve had to work from home through the pandemic, be sure to take advantage of this deduction. All that paper, ink, toner, internet access, phone communication, heating, electricity, and maintenance can really add up. If you need help making the most of this tax break, consult with your financial and tax advisor.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. Contact her directly by phone at 416-828-7159, or by email at rthompson@castlemarkwealth.com for a confidential planning consultation.

Notes and Disclaimer

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.