Update: Jan 20, 2021
Canada released new guidance on Dec 15, 2020 to streamline and simplify the year end taxes specific to Covid19. They have given two choices:
- Simple Flat Rate method and
- Detailed method.
For the Simple Flat Rate method, you are allowed to claim a flat rate of $2 for each workday you worked at home in 2020 due to the Covid19 pandemic, up to $400. The only requirement is that you worked more than 50% of the time from home for at least 4 consecutive weeks in 2020. For example, if you were forced to work from home May 1, 2020 to Dec 31, 2020, so 244 work days, you can claim $400. If you were forced to work from home from July 1, 2020 to Dec 31, 2020, you can claim $366 for the 183 workdays. This is the simple method requiring only a form T777S to be completed.
If you feel $400 is significantly lower than what you can claim, you can consider using the detailed method. This requires a signed form T2200S from your employer, supporting documents for expenses and an allocation calculation for the percentage of your home used for work. There are certain expenses that apply and certain that do not, for example electricity, heat, internet access are eligible whereas mortgage interest, furniture, principal mortgage payments and capital expenses are not applicable. Canada as published a calculator, however your Vancouver accountant can strategize to obtain the optimal tax strategy.
Hello, 2021 and Happy New Year!
To say that 2020 was a unique year, would be a vast understatement! With COVID-19 making multiple shifts in our daily lives, both personal and work, a significant portion of Canadians started working from home, home expenses have slowly started to rise. For example, additional spend on long distance cell phone usage, upgrading home internet bandwidth to accommodate the additional Zoom calls and even electricity costs of increased. Here is a summary of three programs, with two unique to the 2020 tax year and a third with potential huge tax savings. Most of the below are applicable to salaried workers who have been required to work from home due to COVID-19 restrictions.
$400 Tax Deduction for Home Office Expenses
As part of the Canadian Government’s continual financial aid program (announced in the Fall economic statement) the Canada Revenue Agency (CRA) has allowed employees working from home due to COVID-19 to claim up to $400 in modest expenses without the need to track or present supporting documentation. This was rolled out to provide a simplified claim process and is something your friendly local Surrey Accountant can help you complete
$500 Tax Free Home Office Furniture
In the past, CRA has allowed companies to reimburse employees up to $500, with proof of purchase, on personal computer equipment for home office use, tax free. In simple terms, you could spend $500 on a computer, submit for reimbursement to your employer, and not have that $500 added to your employment income.
New in 2020, CRA has expanded these criteria beyond personal computer equipment to include home office equipment. So, if your employer has given you spending allowance to remodel your home office, you can submit up to $500 to your employer and they should not include that as a taxable benefit to your employment income. For example, you could have spent $1,500 on a Herman Miller ergonomic chair, submit that for reimbursement under your employers’ program and $500 will not be included in your taxable income. In short, this is good, but the impact is not huge as not all employers have rolled out such programs this year, opting to just purchase the item for you and retain that as a company asset. Furthermore, you need to keep receipts and submit that to your employer. Your employer will know more about this and is not something you need to worry about.
T2200 Declaration of Conditions of Employment
This option could yield the highest tax benefit with the caveat that your employer agrees to issue you a signed T2200. Most employers will be hesitant to issue this due to administrative burden, the technical requirement of your employment contract to state you are a remote worker and your employer is waiting for CRA to announce a new T2200 short form with details to follow early this year.
Under this method, a portion of home office expenses can be deducted at year end. Expenses such as:
- Rent
- Utilities
- Office Supplies
- Minor repairs & maintenance costs relating to the work space
Interest on mortgage and cost of equipment, such as printers and office furniture cannot be deducted. Also, receipts for these expenses should be retained to support the deduction in the event of a tax audit and the expensed noted above need to be applied on a pro-rated basis. What this means is if you have a 900 sq. ft. apartment, and you use 150 sq. ft. den as an office, the above expenses should be pro-rated on a 16.67% basis for year-end tax deduction. In addition, only expenses for the relevant period of needing to work from home are eligible. For example, if your company issued a notice of close of office effective May 1, 2020, that is the first day you can claim these expenses assuming you have a signed T2200.
What you should do to prepare for these tax benefits/deductions:
- Keep all receipts such as internet and utility bills, rent payments, etc.
- Keep records of when you were required to leave your work office
- Wait for CRA or your employer to give you notification of the T2200 short form
- Start looking for a good tax accountant, one that is well versed in the COVID-19 tax implications and can help guide you through this year end process – like your favorite Vancouver tax accounting firm, Jason Ding, CPA Inc.!
As always, if you have any questions or want to get in touch about your 2020 taxes, contact us at info@jasondingcpa.com.
“The invention of the teenager was a mistake. Once you identify a period of life in which people get to stay out late but don’t have to pay taxes – naturally, no one wants to live any other way.”
― Judith Martin, Author