How to make filing your 2020 taxes less stressful: Tax consulting expert
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2020 was a crazy year for the hordes of Canadians forced to work from home offices and kitchen tables due to the pandemic. According to Statistics Canada, 40 per cent of the workforce was forced to set up shop remotely.
That means 2021 is going to be a crazy tax year for workers who have had to incur expenses otherwise left to their employers. In an effort to head off an onslaught of home office claims the Canada Revenue Agency (CRA) has introduced a simplified deduction of up to $400, but in many cases, it could fall way short of the real expense of working from home.
The new Simplified Temporary Flat Rate Method permits a tax deduction of $2 a day for employees who had to work from home more than half of their work time over a period of at least four weeks in a row. The deduction allows taxpayers to subtract up to $400 from their 2020 taxable income. If you are normally taxed at a rate of 30 per cent, for example, you save $120 on your tax bill.
The method is simple because no receipts or documentation are required, but those who have been keeping track of their expenses throughout the year could find the cost of running a home office was much higher than $400.
Lorn Kutner, a tax expert with Toronto-based Northwood Family Office, says home workers have the option of claiming their expenses the traditional way, but cautions they will most likely come under scrutiny from the CRA when it comes to submitting the proper receipts and documents.
“Employees could always deduct home office expenses but the rules are fairly restrictive, and now more complicated with so many employees working from home,” he said in an email.
The traditional method, known as The Detailed Method, normally requires the employer to fill out a form (T2200) stating the employee was required to work from home. For 2020, it will be replaced by a streamlined T2200S form.
Supplying the form would likely add to the headaches of overburdened employers already dealing with their own pandemic issues, but Kutner said the CRA has previously stated that a “tacit” understanding between the employee and employer may suffice.
“In instances where employers have not provided a clear written statement to employees regarding the requirement to work from home, the CRA has stated that this condition may be met when a “formal” telework arrangement exists that is clearly understood by the employer and employees,” Kutner said.
In a recent note to clients, Kutner laid the groundwork for expenses that can and can not be claimed.
“Generally, non-commission-based employees eligible to claim a deduction for home office expenses can only claim a pro-rated amount of the expenses incurred related to the portion of the home used as a home office,” he wrote.
“Even then, only certain expenses can be claimed – typically rent, utilities, maintenance and repairs and supplies (for example, purchases of ink cartridges and stationery items). Specifically excluded expenses include property taxes, mortgage interest and home insurance. Additionally, a tax deduction is usually not permitted for the purchase of office furniture or equipment, including additional monitors or ergonomic equipment.”
It is important to note that any of the above costs paid by the employer are not eligible.
To help determine which method would provide the biggest tax break for you, the CRA provides a calculator on its website to add up eligible expenses.
Payback Time is a weekly column by personal finance columnist Dale Jackson about how to prepare your finances for retirement. Have a question you want answered? Email firstname.lastname@example.org.