New CRA rules around working from home make it harder to claim expenses

Jamie Golombek: The ‘simplified method’ of claiming home-office expenses is no longer available for the 2023 tax year

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If you’re one of the millions of Canadians who worked from home during 2023, either full time or on a hybrid-work arrangement, you’ll need to take some extra time this tax filing season if you want to claim a deduction for your home-office expenses. That’s because the “simplified method” of claiming home-office expenses is no longer available for the 2023 tax year.

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You may recall that as a result of the widespread work-from-home arrangements that began due to the COVID-19 pandemic, the Canada Revenue Agency (CRA) introduced a simplified method for employees to claim home-office expenses.

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Under this method, which was available for the 2020, 2021 and 2022 tax years, you didn’t have to track your actual home-office expenses. Instead, employees could claim $2 per day for up to 250 days, or $500 ($400 for 2020), as employment expenses. No receipts or proof of your expenditures was needed, and, most significantly, no CRA form was needed from your employer to certify your work-from-home arrangement.

But for the 2023 tax return, which is generally due on April 30, 2024, employees who wish to claim home-office expenses will have to go through the tedious exercise of tallying all their expenses, prorating them and then claiming the appropriate amount as a deduction on their 2023 returns.

Here’s a quick guide to the home-office expense rules for employees, which expenses qualify and how the calculation is supposed to be done based on the latest guidance released by the CRA earlier this month.

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To be entitled to deduct home-office expenses, you must be required to use a part of your home for work. The CRA has confirmed that the requirement to maintain a home office need not be part of your formal contract of employment; rather, it will be sufficient if there is a verbal or written agreement.

The CRA recently clarified that if you voluntarily entered a work-from-home arrangement with your employer, the agency will consider you to have been required to work from home for tax purposes, even in a hybrid-work arrangement.

For the 2023 tax year, the CRA has stated you will be qualified to write off your home-office expenses if your home workspace is where you “principally” — meaning more than 50 per cent of the time — performed your duties of employment for a period of at least four consecutive weeks during 2023.

For example, if you’re in a hybrid-work arrangement that has you go into the office on Tuesdays and Wednesdays (or 40 per cent of the time), this condition would be satisfied since you are working from home the other three out of five weekdays (60 per cent).

Your workspace can be a designated room that is used only for work, or it can be in a common area that has other purposes, such as a kitchen table where you sit during working hours.

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To be able to make a claim for 2023, you’ll need to get a signed copy of CRA form T2200- Declaration of Conditions of Employment from your employer. The T2200 is not submitted with your return, but you’re required to keep it in case the CRA asks to see it later.

You can claim a variety of home-office expenses, such as the cost of utilities, rent, maintenance and minor repair costs, and home internet access fees. You generally can’t deduct mortgage interest, property taxes, home insurance, capital expenses (such as changing a furnace or windows) or depreciation (capital cost allowance).

That means the cost of a new, ergonomic office chair isn’t tax deductible, nor is the cost of a large, widescreen monitor, both of which are considered capital expenses. The cost of most standard office supplies, such as printer paper, ink, pens and sticky notes, are also deductible.

Commission-based employees who sell goods or negotiate contracts can claim some expenses that salaried employees cannot, specifically: home insurance, property taxes and the costs to lease a cellphone, computer, laptop, tablet, etc., that relate to earning commission income.

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For utilities, rent and other home expenses, you need to allocate the expenses on a “reasonable basis” to determine the portion related to employment use. This is typically done by dividing the area of the workspace by the total finished area (including hallways, bathrooms, kitchens, etc.) of the home. You can’t include expenses related to a part of a home that was not used as a workspace, such as the cost of repainting a bedroom where you did not work.

The home-office expense deduction is calculated based on eligible home-office expenses, the percentage of the home’s area that’s used for a home office and, for a shared space such as the kitchen table, the amount of time worked from that space. To make your claim, you’ll need to complete CRA form T777 Statement of Employment Expenses, and file it with your income tax return.

If you worked from home for only part of the year, you can only claim expenses paid for the part of the year that you worked there at least 50 per cent of the time for at least four consecutive weeks.

Edward Rajaratnam, Canadian practice lead partner with Ernst & Young’s (EY) global employment tax services group, has been fielding numerous questions from employers on the new rules for 2023, and the logistics of completing T2200s for multiple employees.

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“I’m disappointed that the rules didn’t come out earlier,” he said, noting that employers are now scrambling to put in place processes to get T2200s in the hands of qualifying employees in time for personal tax filing season.

EY has held two webinars over the past month to provide relevant and timely information on the new T2200 rules to the business community. It has also developed service solutions to help ease the administrative burden of employers looking for assistance in completing the T2200s for hundreds of employees — or thousands in some cases — that may not have the resources to do the work internally.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. [email protected].

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