Hundreds of thousands of Canadians could be eligible for a lucrative tax deduction as a result of the COVID-19 pandemic.
But just how many get to claim that deduction could depend on their employers, and on how the Canada Revenue Agency deals with a series of questions raised by the sudden changes that have compelled millions of Canadians to work from home.
Armando Minicucci, a partner with the accounting firm Grant Thornton, said he expects a big increase in the number of Canadians able to claim a deduction for turning part of their home into an office.
“I would say the number would have to be in the hundreds of thousands,” he said.
It’s called the “work-space-in-the-home” deduction and you can claim it if you work from home more than 50 per cent of the time, or if you have a separate home office and use it to meet clients.
Either way, your employer has to certify that working from home is a condition of your employment. According to the Canada Revenue Agency (CRA), 174,210 Canadians took advantage of the deduction on their 2018 tax returns, claiming an average per person of $1,561.
The deduction allows those who qualify for it to reduce their tax bills by claiming a portion of their household expenses — such as utilities, cleaning and rent.
Normally, the number of people who can claim the deduction is limited. To qualify, you either have to spend more than 50 per cent of your time working from home, or you have to use a home office exclusively for work and regularly meet clients there.
How the pandemic changed things
The current rules require anyone claiming the deduction to get their employer to fill out a form — T2200 — certifying that working from home is a condition of employment. Without that form, the claim would be rejected, said the CRA.
But that was before the pandemic hit.
In March, as COVID-19 began to spread in Canada, public health authorities urged Canadians to stay home. Governments issued orders closing non-essential businesses and employers across the country began telling employees who could do their jobs remotely to work from home.
By mid-April, 3.3 million Canadians had moved out of their regular workplaces and were working from home, according to Statistics Canada’s June Labour Force Survey. While that number dropped by 400,000 in June, millions of Canadians are still working from home.
Some employers, like Ottawa-based Shopify, have told employees they can work from home indefinitely.
By September, those sent home to work in March will have worked at least half the year at home — potentially putting them in a position to qualify for the deduction.
“We’re getting further and further along in this pandemic where a lot of employees are going to have exceeded the six-month mark, and in that situation they should qualify,” said Minicucci.
“But for those employees that have not worked the full six months or more at home, there’s a question with respect to whether or not they meet the eligibility criteria.”
Whether those who haven’t worked a full six months from home will be allowed to claim the deduction is one of the questions Canada’s tax experts have asked the CRA to clarify, said Minicucci.
Keep those receipts
Even if some of those working from home end up falling short of the six-month benchmark, they can still deduct the cost of many of the supplies they have had to consume to get the job done, he said.
“You’re looking at things like pens, paper, ink cartridges for your printer at home,” he said. “Those are items that are consumed. Capital items, unfortunately, are not deductible. So if you buy a printer, not deductible. If you buy a laptop, not deductible. Those are capital items.
“But if you buy items that are being consumed during the course of performing your employment duties, they are deductible. The 50 per cent criteria is not a condition in order to claim expenses for items that you consumed while performing your duties at home.”
Minicucci said now is a good time to talk with your employer about updating your employment contract, and to keep track of your receipts.
The pandemic has raised a number of questions that Canada’s tax experts have asked the CRA to clarify, he added.
For example, will the CRA require each person to have a formal employment contract? Given the stay at home orders, should meeting clients through videoconference or teleconference platforms from home count as “meeting clients at home”? Should the CRA relax the rule that says you can’t claim internet as a work-from-home expense because it’s considered a fixed cost?
A lot of paperwork for employers
The Chartered Professional Accountants of Canada (CPA Canada) also anticipates an increase in the number of Canadians claiming the home workspace deduction for the first time, and is also calling for the CRA to clarify several questions.
For example — should the CRA still require employers to fill out a T2200 form for every employee they asked to work at home?
“Employers will now be required to complete a great number of T2200s,” CPA Canada said in a background paper. “This will add a significant administrative burden for employers. To alleviate the burden, consideration should be given to using an alternative method to simplify the process for the pandemic.”
CPA Canada said it would like the CRA to clarify whether the “more than 50 per cent of the time” benchmark is calculated for the tax year, or for the period the employee was required to work from home. It also said the CRA should consider simplifying the process by allowing taxpayers to claim a per diem deduction for costs related to working from home.
No rule changes planned, says Finance
However, officials from the CRA and the Finance Department told CBC News there are no plans currently to change the rules on the home workspace deduction.
Conservative revenue critic Marty Morantz is calling on the government to clarify its plans for the deduction, and has put questions about the deduction on the House of Commons’ order paper. He said those who have been working from home should be allowed to claim the deduction.
“I think it would be very reasonable for the government to say to folks who were doing their best to comply during the crisis by working at home, and incurring expenses, that they should have the opportunity to claim the deduction,” he said.
Aaron Wudrick, federal director of the Canadian Taxpayers Federation, agreed.
“The deduction exists for a reason — to defray work-related costs that just happen to be home-related and if that reason now applies to a broader class of people, they should be able to make use of it,” he said.