Last month, the CRA provided details for claiming home office expenses for employees for the 2020 tax year. Eligible employees will have the option of choosing between the new temporary flat rate method and a detailed method that could allow for a higher deduction. Highlights include:
Home Office Expenses and COVID-19 – An Update
- New temporary flat rate method — $2 per day, up to a maximum of $400 (i.e., 200 work at home days) if the employee worked more than 50 per cent of the time from home for a period of at least four consecutive weeks in 2020 due to COVID-19. No need to track expenses or obtain Form T2200.
- Detailed method — allows eligible employees to claim the employment portion of actual amounts paid. A signed Form T2200 or new T2200S, which is a new simplified version of the form, is required. Employees will need to track expenses and perform the usual calculations to use this method.
- CRA will now allow home internet access fees to be deducted where the detailed method is used.
- New Form T777S — this new form is a shortened version of the T777 and can be used for both methods; employees can only use and file the T777S with their tax return if they are not claiming any other types of employment expenses.
Also last month, there were many articles in the media about self-employed individuals and their eligibility for the CERB. In order to be eligible, a self-employed individual must have at least $5,000 of total self-employment income in 2019 or in the 12 month period leading up to their application. The CRA is now contacting self-employed individuals who have claimed the CERB on the basis that they may not have met this eligibility requirement.
The CERB and self-employed individuals
The $5,000 test refers to income in the legislation, not revenue, which appears to be the source of confusion. Income from a business is defined in the Income Tax Act in section 9 as the taxpayer’s profit from that business. Profit means revenue less expenses. And the deduction of expense in computing profit is not discretionary (while some tax deductions are discretionary, such as the deduction of capital cost allowance, in general the deduction of expense in computing profit is not).
One Member of Parliament is on record that taxpayers could go back to 2019 and amend their returns and forgo the deduction of expenses should this increase their income to meet the $5,000 test. However, authoritative tax sources do not agree. Income is profit, not revenue. If the government wanted to use a revenue test in the CERB legislation, they could have chosen to do so. While there might have been some confusion initially with eligibility, the legislation is clear.
Scott Conner is an experienced tax practitioner and practical problem solver at BDO. As a partner specializing in Canadian income tax, Scott has particular specialties in private companies, planning for estates, trusts, and complex transactions. As personal tax season approaches, Scott and his team understand personal taxes are as individual as clients themselves. BDO works closely with their clients to understand their specific needs and adjust strategies accordingly. BDO partners and staff take a proactive, hands-on approach. They closely follow existing and proposed legislation to determine how it will affect individual financial goals, and provide ongoing guidance.