As the pandemic continued past 2020 and through 2021, it is likely that employees who were able to work from home spent at least part of the 2021 tax year doing just that. And, as was the case in 2020, those workers may be entitled to claim a deduction on their 2021 tax return for home office expenses incurred.
Employees who work from home have always, assuming the requisite criteria are satisfied, been able to claim a portion of household expenses incurred. Doing so required the employee to obtain certification from the employer of the work from home arrangement, calculate household expenses incurred, determine the portion of such expenses which were attributable to the home office, and to claim that amount on the annual return. For 2020, however, the Canada Revenue Agency (CRA), recognizing the greatly increased number of taxpayers who would be claiming home office expenses for the first time, provided a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that that flat rate method will continue to be allowed for both 2021 and 2022.
Although the flat rate method is widely available, taxpayers who wish to do so and who qualify are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2021 tax return.
In order to claim a deduction for costs related to a work from home space using the detailed method, an employee must meet at least one of the following conditions:
- the employee worked from home during 2021 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); or
- the employee was required by their employer to work from home during 2021.
In addition, at least one of the following criteria must also be satisfied in order to claim work from home costs under the detailed method:
- the work at home space is where the individual mainly (more than 50% of the time) did their work for a period of at least four consecutive weeks during 2021; or
- the individual uses the workspace only to earn their employment income; they must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.
Once these threshold criteria are met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their work space, such as rent, utilities costs like electricity, heating, water (or the portion of a condo fee attributable to such utilities costs), home maintenance, and minor repair costs and internet access (but not internet connection) fees.
Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the work space is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.
In all cases, the CRA can ask the taxpayer to provide documentation and support for claims made using the detailed method.
There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method. Each such employee must obtain either a Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or Form T2200, Declaration of Conditions of Employment. On those forms, the employer must certify the work from home arrangement and confirm that the employee is required to pay their own home office expenses and is not being reimbursed for any such expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.
While the detailed method outlined above can create substantial deductions for employees who work from home, it is apparent that making such a claim involves considerable record keeping and paperwork. Taxpayers who would prefer not to undertake that task can instead avail themselves of the flat rate method.
Conversely, in order to claim a deduction for costs related to a work from home space using the flat rate method, an employee must meet the following conditions:
- the employee worked from home during 2021 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); and
- the employee worked from home for more than 50% of the time for a period of at least four consecutive weeks during 2021.
In addition, the following criteria must both be satisfied:
- the employee is not claiming any employment expenses other than home office expenses; and
- the employer did not reimburse all of the employee’s home office expenses for the year; where the employer reimburses only a portion of such expenses, the employee may still make a claim under the flat rate method, assuming the other criteria are met.
A taxpayer who meets all of the criteria for using the flat rate method can claim $2 for each day they worked from home during the four-consecutive-week qualifying period. They can then claim $2 per day for any additional days of working from home during the year. However, there is an overall cap on the amount of home office expenses which can be claim under the flat rate method. For 2021 the maximum which can be claimed is $500. There is no requirement that the employee obtain a T2200 or a T2200S from the employer in order to make a flat rate claim, and no requirement that the employee keep or provide receipts for any costs incurred.
There is no general rule of thumb which can be used to determine whether the flat rate method or the detailed method will give a better tax result — that determination can only be made where the available deduction is calculated under each method and a comparison made of the result. Taxpayers who don’t want to undertake that effort (or don’t have the records needed to calculate or support such a claim using the detailed method) and who meet the required criteria for the flat rate method can simply multiply the number of work-from-home days (up to a maximum of 250 days, or $500.) and claim the resulting figure on line 22900 of the 2021 tax return.
While calculating the expenses which qualify for a home office expense deduction isn’t particularly complicated, the eligibility criteria for the deduction and determining the percentage of expenses eligible for that deduction can be detailed, especially as the range of work from home arrangements and work from home work spaces is almost limitless. The CRA has provided on its website a very helpful summary of both the general rules for claiming home office expenses for 2021, as well as guidance with respect to particular situations — e.g., where two spouses share the same home office space. That information and guidance (including an FAQ document) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.