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INVESTMENT EXECUTIVE
BYB: TAXES Mid-October 2020
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Claiming home-office expenses in a pandemic
Aclient whose employer required working from home during the pandemic may be able to claim expenses related to the client’s home office this year.
Doing so is permitted if a home of- fice is where an employee principally — meaning more than half the time — per- forms their job or if the home office is used exclusively for the purpose of earn- ing income and for meeting with custom- ers on a regular or continuous basis.
“Many Canadians have met or will meet that [first] ‘principally work-
ing from home’ [test] for 2020,” says Rebecca Hett, vice president of tax, retirement and estate planning with CI Investments Inc. in Calgary.
Eligible expenses include heating fuel, supplies, utilities, repairs and maintenance. Employees who are paid on commission also can expense home insurance and property taxes for a home they own. Mortgage interest and depreciation are not deductible.
An employee working in a rented residence can deduct the percentage of rent and maintenance costs related to that workspace.
Expenses must be allocated in the same proportion the workspace occu- pies in the home. For example, if 15% of the home is used for the home office, 15% of eligible expenses can be claimed.
However, the proportion of allowed maintenance expenses varies: expenses incurred on a part of the house not used for the office space can’t be claimed,
while those incurred exclusively for the office space may be claimed in full.
Employees can deduct workspace expenses from only the income to which the expenses relate. Any ex- penses from 2020 that aren’t de- ducted in that tax year can be carried forward to the following year, as long as the employee is reporting income from the same employer.
In order to claim these expenses, an employee must have their employer complete and sign Form T2200: Dec- laration of Conditions of Employment, which attests that the employee was required to work from home.
“I would absolutely encourage any employee who met, or thinks they will meet, that threshold of working princi- pally from home for 2020 to approach their employer as soon as possible, and talk to them about [obtaining a com- pleted Form T2200],” Hett says.
However, Hett and other tax prac- titioners anticipate employers will be flooded with requests for completed Form T2200s. In September, the Canada Revenue Agency (CRA) consulted with the business community about a draft of a shortened Form T2200 to simplify the process.
“It remains to be seen if this draft Form T2200 becomes the final form or whether there are going to be further changes,” says Jonathan Braun, senior manager, tax and estate planning, with IG Wealth Management in Winnipeg.
Braun says it’s unclear whether
the “principally working from home” test will apply to those who worked from home for less than six months: “Do we interpret the word ‘principally’ to refer to ‘principally through the entire year’ or, in the case of the Covid-19 pandemic, can we interpret that to say it is ‘principally during,
say, April to August’ — when many people were working from home most of time?”
Business groups have been ask- ing the CRA for “more clarity on how these provisions are going to work through 2020,” Braun says.
— RUDY MEZZETTA
A client with very low income might have no tax liability associated with their government benefits
Taxable status of personal Covid-19 government benefits
Taxable benefits
Non-taxable benefits
Canada Emergency Response Benefit (CERB)
Canada Recovery Benefit (CRB)
Canada Recovery Sickness Benefit (CRSB)
Canada Recovery Caregiving Benefit (CRCB)
Canada Emergency Student Benefit (CESB)
Employment insurance benefits
Source: Investment Executive
One-time extra GST/HST credit
One-time extra Canada child benefit payment
One-time extra OAS and GIS payments
One-time extra payment for persons with disabilities
the client’s province of residence. Tax rates vary widely: a client with very low income may have no tax liability associated with their benefits, while someone with income in the top bracket may have to repay more than half of amounts received.
Golombek recommends you and your clients refer to compli- mentary online calculators and tax bracket tables from major accounting firms to determine the marginal tax rate most likely to apply to a client. “It’s very hard to get a handle on how much tax you’ll owe on the CERB without running the numbers on a calcu- lator,” he says.
However, setting aside 30% of benefit amounts received is likely enough to cover the asso- ciated tax liability for a middle- income earner who lost their job for at least part of the year and received the CERB in lieu. Money set aside for this purpose should be parked in a liquid vehicle, such as a high-interest savings account, Golombek says.
Clients also could consider making RRSP contributions if they have unused contribu- tion room and money available, experts say. Contributions to an RRSP may effectively allow cli- ents to offset the benefit amounts they received with an income tax deduction, and “basically reduce the tax liability on that extra
income,” Braun says.
However, Rebecca Hett, vice
president of tax, retirement and estate planning at Toronto-based CI Investments Inc. in Calgary, cautions against clients rushing to make an RRSP contribution before ensuring that they were indeed eligible for all of the CERB or other government benefits they received: “A significant amount of money went out to Canadians who may not have qualified [for relief funds].”
Clients who received gov- ernment benefits for which they were ineligible must return those amounts.
“As an advisor, I might caution clients to hold [money] aside,” Hett says. A client who wants to contribute to their RRSP to off- set a tax liability associated with their benefit should wait until the first 60 days of 2021 to do so, which would still allow the client to take the deduction for 2020.
Clients who received govern- ment benefits for only part of 2020 and who worked the rest of the year from home also may be eligible to claim work-from-home expenses, tax experts suggest (see sidebar). While eligible work- space expenses can be deducted against only the income to which the expenses relate, they never- theless would reduce a client’s total taxable income and any associated tax liability. IE
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