Claiming a home office expense deduction for the 2021 tax filing season
The Canadian federal government announced that it will extend the temporary flat rate method of claiming employee home office expenses for the 2021 and 2022 tax years. This means eligible employees working from home during COVID-19 have two options to claim home office expenses: the temporary flat rate method and the detailed method.
1. The temporary flat rate method
The temporary flat rate method was first introduced by the Canada Revenue Agency (CRA) in 2020. In late 2021, the federal government extended it to the 2021 and 2022 tax years and increased the maximum deductible from $400 to $500.
The temporary flat rate method simplifies home office expense claims for employees who are eligible and choose to use this method.
Who is eligible to use the temporary flat rate method?
As an employee, you are eligible for this method if you:
- worked from home in 2021 due to COVID-19 (if you were not required to work from home but your employer provided you with the choice to work at home because of the pandemic, the CRA will consider you to have worked from home due to COVID-19);
- worked from home more than 50% of the time for a period of at least four consecutive weeks in 2021 due to the COVID-19 pandemic;
- are only claiming home office expenses and are not claiming any other employment expenses; and
- were not reimbursed by your employer for all your deductible home office expenses.
How to calculate your home office tax deduction
Under the temporary flat rate method, the home office expense deduction is calculated at $2 per day for each day the eligible employee worked from home in 2021 due to COVID-19, up to a maximum of $500 (i.e., 250 work at home days). Days off, vacation days, sick leave days, and other leaves or absences don’t count as a workday from home.
Consistent with 2020, employees who use the temporary flat rate method do not need to track expenses, perform workspace calculations, or keep receipts. You also don’t need to obtain Form T2200 or T2200S.
2. The detailed method
Before the temporary flat rate method was introduced, the detailed method was the usual way in which employees claimed home office expenses. Due to COVID-19, eligibility for this method has been broadened for the 2020, 2021, and 2022 tax years.
Who is eligible to use the detailed method?
As an employee, you are eligible for this method if:
- you worked from home in 2021 due to COVID-19 (if you were not required to work from home but your employer provided you with the choice to work at home because of the pandemic, the CRA will consider you to have worked from home due to COVID-19), or were required to work from home by your employer;
- you were required to pay for expenses related to the workspace in your home;
- your workspace is where you worked more than 50% of the time for a period of at least four consecutive weeks in the year, or you only use your workspace to earn employment income and it is used regularly and continually for meeting clients, or other people for work;
- your expenses are used directly in your work; and
- you obtain a signed Form T2200 or T2200S from your employer.
How to calculate your deduction
The detailed method allows eligible employees to claim the employment portion of actual deductible expenses paid.
To calculate your deduction using the detailed method, you need to determine the proportional size of your workspace compared to the total finished areas within your home, and the amount of time that your workspace is used for work, in order to calculate your workspace in home deduction.
As these calculations can be tedious, the CRA has provided examples and an online calculator to assist.
Form T2200S or T2200
You will need to obtain the signed T2200S or T2200 from your employer to make a claim under the detailed method.
The T2200S, which was introduced for 2020, is a shortened version of the T2200 that employers should prepare for their employees who worked from home due to COVID-19 and wish to claim home office expenses under the detailed method.
Note that you cannot use the T2200S if you are also making a claim for other employment expenses, such as motor vehicle expenses, and the T2200 should be used instead.
The relevant Form T2200 or T2200S should be kept on file but does not need to be submitted with your tax return.
Which home office expense claim method is right for me?
If your work or home situation has changed since you filed your 2020 return, you may want to estimate the deduction under both methods to see if the detailed method gives you a higher deduction, provided you meet the eligibility requirements.
The detailed method typically yields a higher deduction for employees who rent their home. There are also additional deductible expenses like electricity, heat, and home internet access fees that can be included in your calculation under the detailed method.
However, if you worked in a common space instead of a designated workspace, such as your dining table, then you would need to further prorate the deduction based on your work hours.
Keep in mind that if you choose the detailed method, you need to obtain a signed T2200S or T2200 from your employer and track your expenses and receipts.
How to make a home office expense deduction claim
The CRA has released Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19 for 2021, which is a shortened version of the T777. You need to complete this form and file it with your 2021 tax return to claim a home office expense deduction. It can be used for either the temporary flat rate method or the detailed method of claiming home office expenses.
Note that you can only use the T777S if you are not claiming any other types of employment expenses such as motor vehicle expenses.
Claiming home office expenses with Revenu Québec
On its COVID-19: FAQ for Individuals webpage, Revenu Québec (RQ) confirmed it would continue to parallel the federal measures to simplify the process for employees deducting their home office expenses incurred during COVID-19 for 2021. Employees can choose between the temporary flat rate method (maximum deduction of $500) or the detailed method.
Consistent with 2020, employees need to obtain form TP-64.3-V, General Employment Conditions from their employer when using the detailed method. This is Quebec’s version of the federal Form T2200.
Although there is no simplified TP-64.3-V, the form indicates that only certain questions need to be answered for employees who worked from home because of the pandemic.
How BDO can help
Many Canadians worked from home last year, potentially making them eligible to claim the home office expense deduction for 2021. Employers will need to provide their employees with a completed and signed Form T2200S (or Form T2200) where applicable, and TP-64.3-V for Quebec purposes where applicable.
Completing multiple forms requires a significant amount of resources and time, which is compounded by the many employees who worked from home in 2021. If you are experiencing resource constraints or could benefit from a more streamlined process, BDO is ready to help you through these challenging times.
Contact us for more information on how we can help you save time in completing the Form T2200S, as well as educate your employees on the home office expense deduction.