Employees who are working at home during the COVID-19 crisis have been wondering if they will be able to deduct home office expenses in 2020 as an employment expense, during the time they are required to work at home. It is very questionable whether the law supports that home office expenses can be deducted by an employee because the employer has required the employee to work at home on a temporary basis. That said, the Canada Revenue Agency (CRA) may be considering administrative relief to allow more flexibility to employees when considering whether these expenses can be deducted in 2020.
It is rumoured the CRA will likely be flexible in what will likely allow for 2020, and will also hopefully be flexible with employers as to whether Form T2200 will have to be provided to all employees who want to deduct these expenses. That said, no final decisions have been made and we will have to wait and see until the CRA makes a formal announcement.
Under the current rules, as an employee, you can deduct the cost of maintaining a home office as long as you were required to provide your own place of work and you pass one of the following two tests:
1) Your home office is the principal place of your employment. Basically, this means that you work more than 50 per cent of the time from your home office.
If the facts indicate that a taxpayer simply uses their office in the evenings to catch up on emails, it is highly unlikely that the evening use is greater, in terms of time, than the use made of their office provided by the employer during their work day.
2) Your home office is used exclusively for employment purposes and is used on a regular and continuous basis for meeting clients and customers or other persons in the ordinary course of performing the duties of office or employment.
If one cannot pass either of these tests, home office expenses are not deductible.
Restrictions on certain expenses
Certain home office expenses are limited or denied entirely depending on the type of employment. For example, mortgage interest, home insurance, and property taxes are not allowed as deductions in employment settings where there is no commission income.
No income, no deduction
Home office expenses are limited to income from employment and cannot be used to generate a loss. Any amounts so restricted can be carried forward to a future tax year where it can be claimed against income from the same employment.
Is it in your contract?
The CRA has commented in their technical interpretations that an informal at-home arrangement that does not require the employee to work at home does not permit the home office deduction. Form T2200, declaration of conditions of employment, completed by the employer helps formalize the arrangement requiring the employee to incur expenses as part of their employment.
Where should you work?
With the COVID-19 outbreak spreading around the world, many employers are seeking to understand how they can enable their employees to work from home while weathering the outbreak. While remote work is not a new concept, the need to ensure employees have a productive and safe place to work, if they can’t come into the office, has never been more top of mind.
Scott Conner is a partner in BDO’s Huntsvile office, with over 20 years of experience providing corporate and personal tax planning strategies for family-owned businesses, entrepreneurs, and large corporations. He helps his clients with shareholder remuneration strategies, estate planning, as well as business structuring to minimize taxes.