CRA offers tax break on work from home expenses
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A record number of Canadians were forced to work remotely because of the pandemic, and the Canada Revenue Agency has unveiled a new tax deduction to allow more people to claim expenses related to their home office.
If you were among the 40 per cent of workers who, according to Statistics Canada, found themselves working remotely as pandemic lockdowns were enforced, then you have two options to claim your tax deduction.
The first is the Simplified Temporary Flat Rate Method, which is new for 2020 and is the most simple and straightforward. There’s no need to provide receipts or get anything signed by your employer.
It’s best-suited for those who have modest expenses and don’t want the hassle of submitting and keeping proof of payment.
Eligibility requirements for the new rules are straightforward. Employees who worked from home more than 50 per cent of the time over a period of at least four weeks in a row because of COVID-19 can apply. The tax deduction rate is $2 a day, up to a maximum of $400.
The Detailed Method involves more steps and existed pre-pandemic, but has been streamlined for the 2020 tax year. Using this route, employees are required to provide receipts as proof of payment for eligible expenses such as office supplies, electricity, heat, phone and vehicle expenses. Home internet services are a new type of expense that can be claimed. Expenses that are reimbursed by the employer are not eligible.
If you’re unsure about which method to use, a CRA calculator is available to help determine what expenses are eligible and to help tally them. This new tool can help in deciding between the simpler Temporary Flat Rate or the Detailed Method.
The Chartered Professional Accountants of Canada applauded the federal government’s new approach to this complicated administrative task, stating in a press release that it helps reduce “the compliance burden.”
According to Peter Tzanetakis, president of the Canadian Payroll Association, the simplified method – which waives the employee’s need for a T2200 or T2200S form – could save employers collectively more than $194 million. He says it allows them to “focus more intently on critical business needs.”
Approximately 750,000 people claimed the home office expenses deduction last year and the CRA said it expects this year’s uptake to be significantly greater. The new measure was announced in the fall fiscal update in November and $210 million is earmarked for this type of deduction, with the majority of claims expected from first-time applicants.
The CRA would not provide specifics regarding plans to ensure that only valid claims are approved, but it suggested that a tax audit could be part of its enforcement approach. The agency said it has access to data from employers and third parties regarding real estate, which it can cross-reference to determine which claims need to be reviewed.