Working from home during COVID-19: Can expenses be deducted?
Monday, June 22, 2020 @ 12:23 PM | By Kurt Wintermute and Nicholas Horlick
In this series, we will outline three approaches that may be taken to deduct home office expenses. First, an employee may be able to deduct these expenses from their own taxable employment income. Second, an employer can provide their employees with home office allowances. Third and finally, an employer can reimburse employees for any actual costs incurred by the employee relating to home office expenses.
Deducting home office expenses
Employment expenses, such as those relating to a home office, can sometimes be claimed as a deduction on a personal income tax return. Whether the deduction can be claimed depends on a number of conditions. In addition, no deduction can be claimed if the expense was reimbursed by the employer.
In order to claim employment expenses, a few conditions must be satisfied. First, the employer must prepare and sign a Form T2200 Declaration of Conditions of Employment form confirming that the employee was required to pay the expenses in question. Second, an employee must fall into one of the following categories:
- The home office space is where the employee principally does their work (generally meaning more than 50 per cent of the time); or
- The home office space is used only to earn employment income, and is used on a regular and continuous basis for meeting clients, customers, or other people in the course of one’s employment duties.
Under the first category, there is some uncertainty as to how to interpret “principally.” It could be suggested that the relevant time to consider whether an employee principally does their work from their home office is an entire calendar year, meaning that an employee would have to work from their home office for at least six months of the year to qualify.
However, this interpretation would mean that it would be difficult or impossible for employees who start or cease home office work partway through the year to qualify, even if it was because they changed employers.
A more appropriate interpretation is that the employee must principally perform their employment duties in their home office space during the time period for which home office expenses are actually being claimed. Therefore, if an employee is required by an employer to work from home for five of the 12 months in a calendar year, as long as the employee “principally performs the employment duties” from the home office during those five months, he or she should be entitled to claim home office expenses for those five months.
The second category could also be difficult to satisfy in a pandemic. The Canada Revenue Agency (CRA) has traditionally considered “meeting customers” only to include face-to-face encounters. There is no indication that CRA would consider online virtual meetings and conference calls in evaluating whether an employee falls into the second category above. While some Informal Procedure Tax Court of Canada cases have held that meeting customers could include meetings held by phone, these decisions have not influenced the CRA to change its policy.
Employees should keep track of expenses associated with their home office in case they end up qualifying under the current rules or if the government implements new rules permitting COVID-19-related home office expenses. Because it is not certain whether CRA will introduce new rules to adjust the criteria for deduction of additional home office expenses incurred because of the COVID-19 pandemic, employees should not assume that home office expenses or purchases related to remote work will always be deductible.
This is part one of a two-part series. Read part two: Working from home during COVID-19: Allowances and reimbursements.
Authors’ note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.
Kurt Wintermute is the senior tax litigator and head of the MLT Aikins LLP tax litigation practice area. He represents corporate and individual clients before all levels of court and taxation agencies regarding federal and provincial tax issues. Nicholas Horlick is an associate lawyer and member of the MLT Aikins tax litigation team. He assists individuals and businesses with taxation issues in a variety of contexts, including federal income tax, GST, provincial sales tax, tax-driven bankruptcy, and property tax assessment. These articles were prepared with the assistance of MLT Aikins summer student Danielle Hopkins.
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