Legal professionals expecting to enjoy a tax rebate from working at home during the COVID-19 pandemic should not start budgeting for a windfall on their 2020 return. That is because the Canada Revenue Agency rules on home office deductions are already restrictive, and the new realities of work expenses in a forced work-from-home have yet to be fully addressed.
Laura Jochimski, an articling student in the tax litigation group of EY Law, recently co-authored a widely read article on EY Law’s website addressing some of the uncertainties about work-from-home expenses. In an interview, she elaborated on the limits of home office expenses that can be claimed.
“The rules are written in such a way that, at first blush, it may appear that certain things are deductible. You just see the title, “home office deductions” and you get all excited because you say ’I have a home office’,” she says. “But when you actually get into the rules, the language is very limiting and certain preconditions have to be met.”
For starters, home office deductions can only be claimed if an individual does more than 50 per cent of their work from home. Even though many employees are required to work at home at present, it is unclear whether working 100 per cent of the time for a period of time meets this stipulation, or whether workers must spend 50 per cent of their year working out of home. Furthermore, the home office has to be used for “meetings” with customers and clients – and CRA has previously taken the position that calls or videoconferences don’t count.
To add another layer of complexity, eligible expenses – such as utility costs – are calculated as a percentage of the residence that is actually used for work (i.e. a room that serves as an office). Employees are to make this calculation on a “reasonable basis” and are allowed to include kitchens, hallways and bathrooms. Eligible deductions are calculated as a share of the total utility costs.
Before even starting to calculate deductions, the first step for employees is to talk to their employer about getting a T2200 form signed – the Declaration of Conditions of Employment. Next, workers need to start collecting receipts for eligible expenses for workspaces, including cost of electricity, heating, maintenance, property taxes, and home insurance. A share of rent is deductible, but mortgage interest is not.
“Just so you have all your bases covered, I would talk about the form with your employer and save your receipts,” says Jochimski.
She notes that CRA has already made some adjustments since the pandemic began. For instance, up to $500 of allowance paid by employers to employees for tech-products will not be counted as a taxable benefit. But she says there are more items that CRA will have to consider, such as working at home being required under an employment agreement for deductions to be claimed.
“I think there's going to be a lot of questions in the current landscape where employees are forced to work from home and perhaps even after offices reopen, if working from home becomes much more prevalent,” she says.