Working from Home? Write it Off.
Working from home because of COVID-19? Using part of your home for odd jobs or something related to working? Save on your tax bill by using Canadian Tax Deductions for Home Office. Write-off your utilities, internet, phone, mortgage, rent, and more.
Home Office Tax Deduction (for Employees)
Your Employer will have to complete this form: T2200 Declaration of Conditions of Employment.
Your employer will fill it out confirming what expenses you will incur to perform your employment duties. Unlike most other documentation, this document is very frequently requested by the CRA, as well as supporting receipts or statements. The CRA has a high success rate of denying otherwise ineligible claims.
Qualification for Employment Expenses
The area must be exclusively for employment use, and such use must be either:
- essential to duties of employment if not specifically referred to in contract, OR,
- an essential term(s) of the employment contract.
The employment contract can be either in writing or not. It is the agreement that governs your working relationship with the employer.
As you may suspect, “essential term” and “exclusively” are terms CRA and taxpayers butt heads over because they are vague.
To protect yourself and clarify things, have your employer (preferably in writing, though not required) clarify what your essential duties are to be from using your home office space.
“Essential” is a term debated all the way to the Courts. Basically, you must be required to incur those expenses for your job, and not by choice. For example:
- Essential: An university professor, required for the job, answers emails and marks assignments and exams from home at times where the campus office is otherwise not reasonably accessible.
- Not essential: An accountant regularly reports to an office where he/she does the majority of his/her duties, but opts to perform some duties at home, where the employer does not require him to do so as a condition of his job.
Eligible Employment Home Office Write-Offs/Deductions
- Utilities: power, water, heat/gas
- Maintenance done to your home, related to the work space
- Insurance (Commission employees only)
- Property taxes, condo fees, etc. (Commission employees only)
Of the above, you can claim the portion of your home that you use for work. For example, if this is the basement, and your basement is 1/3 of the total floor area of your home, then you can claim 1/3 of the above expenses.
CRA verifies the employment use part usually by asking for a floor plan, and seeing if you use the same space for anything else.
You can also claim your phone if you use it for work purposes, usually though in part if also a personal phone. Typically it is 50%, depending on industry.
For example, suppose:
Power, water, gas: $200/month Insurance: $50/month Property tax: $250/month Total: $500/month Part of home used for employment duties: 1/3 Total employment use part: $500 x 1/3 = $166.67 Months of the year used: 9 Total home office employment expense for the year: $1,500 Phone used for employment, also personal: $100/month; 9 months @ $900. Employment expense for phone: $900 x 50% = $450 Total employment expenses for the year: $1,500 + 450 = $1,950 Employment income for the year, gross: $60,000 Employment income for the year, net: $58,050 Taxes saved: $598
What if the Part of the Home is Also Subject to Personal Use?
If you also use this space for other purposes, then you can be allowed the claim, in part (or all, depending on your argument). You can either establish that:
A) You use such space exclusively for employment only, OR
B) You use X part of such space exclusively for employment only (e.g. half of this space).
You’ll be compared to others in your occupation with a similar home layout, and past rulings for the calculation of what is deemed “reasonable”.
They will also consider the nature of your job – that is how dependent you are on such home office space – though how this will be interpreted due to COVID-19 is not yet known.
Example #1: Teacher claims employment expenses for home office use.
CRA's Stance: - Teacher had the option to use her school office/classroom; - Working from home was not an essential term to her employment contract. Teacher's (Successful) Stance: - It was unreasonable to expect her to drive in rush hour traffic to get to school and back; when she could had otherwise done tasks at those times, from home. - Such tasks were essential to her job.
Example 2: Taxpayer was Automotive Branch Manager.
— Taxpayer set up home office for convenience; — Taxpayer claimed home expenses and salary expenses paid to wife and children on 1999 income tax return; — Minister of National Revenue assessed 1999 income tax return and disallowed home office expenses; — Taxpayer appealed, Appeal dismissed; — Taxpayer did not establish that he was required by his contract of employment with corporation to pay expenditures for home office, pursuant to s. 8(1)(i) of Income Tax Act; — Taxpayer was permitted by employer to maintain home office, but not required to do so — Section 8(1)(i) required that expenditures must be essential to duties of employment if not specifically referred to in contract; — Although it made business sense to have home office, it was not essential to have one. (Emery v. R., 2003 TCC 568)
What is “Maintenance” for Home Office?
Home maintenance are expenses incurred for the upkeep of your home (or in this case, related to your office space claimed). That is, expenses to maintain the condition of your home, and are not capital improvements that add value to your home, and have a lasting purpose.
Capital improvements adding value, are instead claimable only for business, rental, or investment purposes – not employment. In those cases, they are claimable only in part – depreciated over years.
– Repair of leaking roof.
– Painting, where your old walls’ paint is fading/chipping off.
“[a]n expense that simply restores a property to its original condition is usually a current expense…” and that “[t]he cost of repairing a property by replacing one of its parts is usually a current expense.”Canada Revenue Agency (“CRA”)
Example Case of Home Maintenance Expense vs. Capital Expenditure
House was cribbed, jacked up, and existing footings were straightened and reinforced with some more cement. Issue between CRA and taxpayer: - Are these current maintenance expenses, or capital expenditures only claimable in part? (In your employment case, they would not be claimable at all, if deemed capital expenditures.) — Water pump and tank under house were repaired — Electrical wiring was replaced — Taxpayer appealed CRA assessment that disallowed deductions for costs of repairs and maintenance — Appeal allowed — Repairs did not improve house beyond its original condition in any manner — Costs of repairs and maintenance, though all done at once, were properly deductible as current expenses and were not required to be capitalized. Martinello v. the Queen, 2010 TCC 432