There is no doubt that COVID-19 has changed the way many of us operate in the world. While social distancing measures are slowly being lifted across the world, there is no doubt that the way of life for many of us will never quite return to pre-pandemic levels.
Already there have been several large businesses who have made the decision to have employees work remotely on a permanent basis. Even the company that I work with has started the process of terminating office leases for several of our divisions, transitioning to a full-time remote environment to save on office costs. These moves will likely impact you, or someone you know, pushing people to create home office environments to accommodate these changes. What would a push towards WFH (work from home) actually mean for you?
Tax Implications of WFH
In Canada there are federal tax implications for home work spaces, allowing you to deduct home office expenses from your income. This helps you reduce the income taxes that you pay, which ultimately leaves more money for other areas of your life. To qualify, one of two conditions must be met:
- The space must be where you work more than 50% of the time.
- The space is used only for the purpose of generating your employment income.
What these conditions mean is that you either; work from more than 2.5 days a week, or that you have a dedicated home office. This is an important distinction, because as the past few months has shown us, we might work from home a substantial amount of the time, while not having a home office set up.
This certainly applies in my case, where my living accommodations aren’t large enough to provide room for a separate office space. All space in my condo is for both living and working. Therefore, I would not qualify by having a space reserved solely for generating employment income.
You have a “Work-space in the Home”, now what?
Even if you do work from home more than 50% of the time, or have a home office. If you are an employee, there are a few other criteria for claiming work expenses. As explained in the bulletin for the Income Tax Act IT352R2, employees must be required by contract to provide the office space. Also, expenses incurred cannot be reimbursed by the employer.
What this means is, in general, if you have a desk provided to you by your employer, you likely do not qualify. Likewise, if your expenses are reimbursed, you cannot also claim this as a tax deduction (sorry, your employer has already claimed those expenses).
As employers make the switch to different office space arrangements though, those lines become more blurred. Some offices offer “hotelling” of their desks, meaning the employer isn’t providing you your own work space. In increasingly grey areas caused by these working arrangements, it is best to have your employment contract stipulate that you are expected to maintain your own work-space at home.
Along with the employment contract, your employer will also have to fill out Form T2200 that confirms the requirement of a home work-space, as well as how much of your expenses are reimbursed.
What expenses can be claimed?
We often think of the more obvious expenses, like printer paper or cell phones, but there are quite a number of “overhead” expenses that can also qualify. These expenses are based on a reasonable cost allocation. For example, if your home is 1,000 sq ft and your home office is 200 sq ft, you would be able to claim 200/1,000 = 20% of certain expenses. Some eligible overhead expenses are:
- Hydro (Electricity)
- Internet and Phones
- Maintenance fees
- Property taxes
- Homeowner’s Insurance
Making the best financial decisions means being informed. As the way we work transforms to fit our “new normal”, this extends to how our work-from-home spaces can be used to reduce your taxes. Knowing where to look to find savings on taxes is just one way you’ll be positioned to thrive in the year ahead.