Paul Dunne CPA, CA (FCA Ireland)
As an employee who, pre-COVID, commuted a distance from where you live to your office, you have long been aware that employment comes at a cost; wasted travel hours, transportation costs, “appropriate” clothing costs and so on. Employers do not cover these costs and, if they do, the amounts you receive in compensation may be taxed as “employee benefits”. Seems a bit unfair but there is a silver lining. Many employees working from home are not only saving the hidden costs of commuting to an office but may in addition be entitled to a tax deduction for certain expenses of maintaining an office at home.
DO I QUALIFY?
To qualify for a deduction, your home must be where you “principally” (more than 50% of the time) perform the duties of your employment.
Alternatively, you will qualify if your home is used exclusively for the purpose of earning income from employment and on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties of your employment. This alternative condition will be harder to interpret in a COVID environment since CRA currently considers meetings to mean “face to face” only.
WHAT CAN I DEDUCT?
You need first to calculate the proportion of space dedicated to your home office as a percentage of the total space of the home for the purpose of claiming deductible expenses. So, for example, if you rent a three bedroomed apartment and one of the bedrooms is dedicated as an office 100% of the time, you can deduct the portion of rent paid equal to the proportion of the dedicated office to the entire space occupied. So if you pay $2,000 per month for a 1500 square foot space and the dedicated office is measured at 300 square feet, you can deduct monthly rent equal to 20% of the rent you pay or $400 per month in this example.
You may also deduct a portion of heating and electricity costs, any supplies your employer expects you to provide and maintenance such as cleaning and minor repairs.
WHAT CAN I NOT DEDUCT?
There is a bit of an anomaly in the tax legislation because it specifically excludes deductions for real estate taxes and insurance (except for employees paid on commission) as well as mortgage interest and depreciation. However, since all these costs underlie residential rent charges, a renter gets to deduct them indirectly but if you are an owner, you don’t.
Another element that might seem unfair is that the base cost of a telephone (read internet these days) is not deductible.
But, take heart, the cost of sending a telegram IS an allowable deduction according to CRA!
WHAT IF I AM REIMBURSED BY MY EMPLOYER?
Obviously, expenses reimbursed by your employer will not also be deductible for tax purposes. Indeed, if these reimbursements or allowances exceed what you would otherwise be able to claim as a deduction, the excess could be treated as a net taxable benefit.
Expenses reimbursed by your employer will obviously be more valuable to you than a tax deduction so if your employer is requiring you to work from home, you should discuss with her the possibility of compensation for the cost to you of setting aside personal space for work. Remember it is not just the employee who benefits from home-working. Employers will pay less for office rent and supplies when you work from home and the cost of late arrivals, absences and sick days will also be greatly reduced. There is growing evidence that employees working from home are more productive partly because some or all of what was their commuting time is “donated” back to the employer.
So no need to be shy! Most employers are willing to discuss a formula that will enable employees to share in the benefits they enjoy when workers do not come to the office.
A little-known benefit arising from COVID is that CRA has agreed to permit an employer to pay up to $500 to an employee free of tax for the purchase of a computer that they may need to work from home.
HOW DO I CLAIM?
The short answer is that your claim will be deducted as “Employment Expenses” (line 22900) on your personal tax return. Detailed expenses are itemized on form T777.
To make the claim, you will need to have your employer complete form T2200 Declaration of Conditions of Employment (available here) and sign it. This form does not have to be filed with your tax return but you should retain it for inspection by CRA if necessary. You will need to obtain a separate form from each employer so, if you are changing employers, make sure to have the form signed before you leave.
MODERNIZING TAX LEGISLATION
The present government is making no secret of the fact that employment law will need modernization to align itself with post-COVID practices which will include a re-examination of its relevance to home-workers. This should include a fresh look at the tax code and whether it is fit for purpose in an environment where so many employees will be working completely or partially from home.
Employees should therefore hope that this will lead to a fairer system and deal with anomalies such as the different treatment of renters and owners. However, a major consideration will be whether it is good public policy to encourage home-working or not. Let’s not forget that enormous amounts of investment have been and continue to be made in commuting infrastructure. These include, roads, bridges and subsidized public transportation to carry workers from where they live to downtown offices. And this is not even to mention the probable bailout costs of cities that will suffer economically from the “doughnuting” of city centres.
It is therefore not completely obvious that central governments will be motivated to offer enhanced incentives for employees to work from home whatever the benefits to productivity and indeed the environment.
