People working from home amid the pandemic will get some relief again this tax season after Ottawa extended its temporary home office tax deduction program, with a few minor changes.
The federal government first introduced a temporary flat rate home office expense tax deduction for the 2020 tax year after the pandemic forced many people to use their kitchens, bedrooms and living rooms as makeshift workspaces.
Canadians who were required to work from home as a direct result of the pandemic were able to claim $2 for every day they worked remotely, to a maximum of $400 for the year, based on certain criteria.
The deduction can be claimed on personal tax returns and helps Canadians reduce the amount of income they pay tax on in a given year. People who do their own taxes can easily make the claims, especially when using the right tax solution.
The government has said the temporary deduction can be used again for the 2021 tax year (those taxes are due April 30) as well as for the 2022 tax year. Ottawa also increased the maximum deduction to $500 for both years.
“These changes allow more flexibility for people to claim certain home office expenses,” says Hanna Roohi, a partner at Roohi CPA LLP, in Mississauga, Ont.
Before the pandemic, Canadians could only claim home office expenses if their employment contract explicitly required them to make those purchases. Ms. Roohi says the employer would have to complete and submit a T2200 Declaration of Conditions of Employment to the Canada Revenue Agency (CRA). Workers who made the claims were also required to track their expenses, hang on to receipts for those items and list them in a T777 Statement of Employment Expenses form.
Known as the “detailed method,” salaried employees could claim a portion of their utilities, Internet, minor repairs, maintenance costs and rent. Those who work on commission could also claim a portion of their home insurance, property taxes and leases for technology equipment like cell phones, laptops and printers.
“The vast majority of employees wouldn’t normally qualify to submit employment expenses, because they weren’t required to have them,” says Susan Watkin, an accountant and spokesperson for TurboTax Canada.
The pandemic changed that. “As so many of us had to work from home during the pandemic, the creation of the temporary flat rate method has made it possible for us to get back some of the costs we incurred while working from home” Ms. Watkin says.
The temporary flat rate method is more appealing than the traditional detailed method because taxpayers don’t have to calculate the size of their workspace, collect receipts or have their employer fill out any additional paperwork. All they have to do is enter the number of days they worked from home on a T777S Statement of Employment Expenses for Working at Home Due to COVID-19 form.
Those with pandemic-related work from home expenses that go beyond the $500 limit of the flat rate method, however, can
use a simplified version of the “detailed method,” which was introduced in 2020. Those who choose the detailed method must similarly complete a T777S, but are required to provide some additional information under the “Option 2 – detailed method” subheading.
Taxpayers who go the detailed method route are also required to have their employer submit Form T2200S, Declaration of Conditions of Employment for Working at Home During COVID-19. This shortened version of the T2200 is specific to home office expenses and doesn’t require expenses to be explicitly mentioned in the employment contract.
The detailed method allows Canadians to claim certain costs — such as office supplies, utilities and a portion of their rent — but still requires that they keep all supporting documents for those expenses.
“That’s a decision the taxpayer has to make,” Ms. Watkin says. “If they feel they have significantly more employment expenses they can move into the detailed method, which requires a lot more of them, and they have to make sure their employer is going to sign it.”
Ms. Watkin says most Canadians that were required to work from home as a result of the pandemic are likely
to use the same method as last year.
She notes TurboTax’s suite of tax solutions is ready to help do-it-yourself taxpayers make these deductions. For instance, TurboTax Free is designed for people filing simple tax returns, and this year it includes new features such as the ability to import data from the previous year’s TurboTax return. Furthermore, all Canadians aged 25 and under can select any version of TurboTax Online, Assist & Review or Full Service free of charge.
Deluxe is the latest addition to the TurboTax product lineup this year and is for people who want to maximize tax credits and deductions with slightly more complex tax situations, such as medical expenses and donation claims. Meanwhile, TurboTax Premier is for those with an even more complex tax situation, including investment income and rental properties.
“TurboTax makes it really easy to either claim the temporary flat rate method, or walk you through the detailed method,” Ms. Watkin says. “Just go into tax season knowing that it’s similar to last year, you can claim a little bit more, and if you need help your tax software will walk you through it.”
This article was originally published by The Globe and Mail – How to claim home office expenses on your personal taxes as remote work continues