Making sense of the home office tax deduction

In response to COVID-19, the Canada Revenue Agency (CRA) announced new changes around the home office tax deduction for employees which may ease the reporting burden for employees and employers.

You may be wondering if this is something you need to concern yourself with or if there is something you need to do for your staff.

Here are some frequently asked questions and answers to help you.

What are the deduction calculation methods related to home office and how do I know which method to use?

The CRA is allowing two methods, the flat rate and the detailed, for employees who worked from home due to the COVID-19 pandemic. 

To qualify, an employee must have been required to work from home for one or more periods of four continuous weeks and mainly (greater than 50 percent) worked from home during that period, to qualify for home office expense deduction.

1. The flat rate calculation is $2 per day for the days worked primarily at home, to a maximum of $400.
2. The detailed calculation requires you to add up household expenses, like utilities, rent, internet, and phone lines but excludes some of the bigger costs like property taxes, house insurance and mortgage interest (for your non-commissioned employees).

We recommend using the simple flat rate of $2 per day unless you rent your home.

I’m self-employed/I’m incorporated and my medical office assistant did a lot of work from home during 2020; do I need to provide them with a form?

You do not need to provide a form to your employee if they are using the simple flat rate method. If they choose to use the detailed calculation, you will need to provide them with the T2200S one-page form. Click here for the T2200S form.

As an employee of my corporation, can I claim the employee expense deduction?

Many doctors may already be receiving a credit for the use of their home office space. If this is the case, taking another deduction for the same space may be questioned by CRA. Consult your accountant to clarify your situation.

I am self-employed, can I claim this deduction?

As a self-employed person, you are likely already claiming a deduction for business use of your home. Consult your accountant for clarification.

What are the potential tax savings for taking the deduction?

The deduction would result in tax savings of no more than $200, unless you rent your home and the allowable expenses would be higher. The savings amount depends on your income level and tax bracket.

I’ve updated my office space. I purchased new furniture and a printer, did some painting, and replaced the window. Can I deduct these costs since it’s all for business?

There may be an argument to expense some of these costs. Whether you are a salaried employee of your corporation or a self-employed professional, it would be hard to insist updates to your home office space are required. However, you may have a claim to expense the furniture and/or printer if these items are used solely for your practice. Contact your accountant for more advice about your specific situation.