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Working from home during COVID-19: Allowances and reimbursements

Wednesday, June 24, 2020 @ 3:21 PM | By Kurt Wintermute and Nicholas Horlick


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Kurt Wintermute
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Nicholas Horlick
In the first instalment of this series, we outlined the criteria employees must meet in order to claim a tax deduction for home office expenses incurred while working remotely. In this instalment, we discuss the alternative options of allowances and reimbursements for home office expenses.

Home office allowances and reimbursements

Instead of having employees deduct expenses directly, an employer can provide a technology allowance or a reimbursement of technology expenses to help employees work from home during the pandemic. An allowance is typically a lump sum amount paid to an employee for a specific purpose that is not based on actual cost and results in a taxable benefit to the employee.

In contrast, a reimbursement is generally a repayment to the employee of an expense incurred by the employee in the course of their employment duties and normally would not result in a taxable benefit. However, if the reimbursement is considered by Canada Revenue Agency (CRA) to be a reimbursement for personal expenses, such as upgrading home computer equipment or buying a webcam, it could also be considered a taxable benefit.

In response to the COVID-19 pandemic and corresponding increase in the number of employees working remotely, the CRA has recently stated that they will not consider a reimbursement of up to $500 for purchases such as personal computer equipment that allow employees to work from home to constitute a taxable benefit. These purchases must principally be for the employer’s benefit and must be supported by an invoice.

An employee who receives an allowance from their employer that is considered to be a taxable benefit may be able to claim certain employment expenses to offset that allowance if the employee was required to incur these employment expenses under their contract of employment and the employer certifies this by completing a T2200 form and provides it to the employee.

Where an employer reimburses an employee for the actual cost of expenses incurred during the course of their employment, an employee cannot “double-dip” by claiming those expenses as a deduction on their personal income tax return as well.

Conclusion

Employees hoping to deduct home office expenses on their tax returns should be aware that they must meet one of two criteria to do so. In summary terms, the space must either be used for the employee’s work more than half the time or must be regularly and continuously used only for meeting clients, customers or others in the course of employment duties. Although CRA has not stated any plans to change these criteria to reflect the unique circumstances of COVID-19, employees may wish to keep documents they could use to support a deduction later on.

To summarize, CRA has said that a reimbursement from an employer of up to $500 will not be considered a taxable benefit if it is to purchase personal computer equipment that enables employees to work from home. The purchase must primarily be for the employer’s benefit and must be supported by an invoice.

In addition, employees who are required by their employer to utilize a home office or incur other employment-related expenses should ensure that their employer prepares and signs a Form T2200 Declaration of Conditions of Employment. In these forms, employers certify that the employee must incur certain types of expenses as a condition of their employment.

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.

This is part two of a two-part series. Read part one: Working from home during COVID-19: Can expenses be deducted?

Kurt Wintermute is the senior tax litigator and head of the MLT Aikins LLP tax litigation practice area. He has extensive experience representing 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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