Tax Insights: Canada Revenue Agency introduces simplified process for deducting employee home office expenses during the COVID-19 pandemic

In brief

Today, the Canada Revenue Agency (CRA) issued some timely guidance to clarify its position on employees deducting home office expenses, in light of the COVID-19 pandemic, by:

• introducing a simplified flat daily rate deduction method
• issuing simplified forms T2200S and T777S

This Tax Insights discusses how the CRA will simplify the process of deducting employee home office expenses for 2020 for both employees and employers.

In detail

Employees

Temporary simplified method

For 2020, eligible employees will be able to claim a personal income tax deduction for home office expenses at a flat rate of $2 per day worked at home in 2020 due to COVID-19, up to a maximum of $400. To be eligible for this deduction, employees must have worked more than 50% of the time from home over a period of at least four consecutive weeks in 2020, due to the COVID-19 pandemic. Provided this condition is met, all days worked at home during the year are eligible for the flat rate claim. If multiple employees worked at a single household, each eligible employee is entitled to claim the flat rate deduction using the temporary simplified method.

For purposes of counting the days worked at home, a work day is considered to be one that an employee worked either full time or part time hours from home. The following days would not count as a work day:

• day off (including weekend days or other days on which no work was performed)
• vacation day
• sick leave day
• other leave or absence

If an employee deducts home office expenses using this simplified method for 2020, the employee will not be:

• required to obtain a completed and signed form T2200, Declaration of Conditions of Employment, from their employer
• permitted to deduct any other employment expenses for 2020

The CRA has provided further information, and answers to “frequently asked questions” regarding this simplified method, on its website.

The simplified method for deducting employee home office expenses for 2020 applies for federal and all provincial and territorial personal income taxes, except for Quebec. Revenu Québec published a 2020 version of form TP-64.3-V, which simplifies the disclosure related to working remotely during the COVID-19 pandemic, but has not yet announced whether it will also allow the flat rate deduction approach for home office expenses.

Traditional method

Employees may instead choose to deduct home office expenses using the traditional method for 2020. To do so, the employee would be required to:

• obtain a completed and signed form T2200, or new form T2200S (see below), from their employer
• determine the percentage of time that they worked from home and their eligibility for deducting home office expenses

For more information on the existing tax treatment for employee home office expenses, see our Tax Insights “Employee home office expenses during the COVID-19 pandemic - tax deductions”. Note, however, that today’s CRA announcement relaxes the qualifying criteria for 2020 under the traditional method. An employee who worked at home in 2020 due to the COVID-19 pandemic for at least 50% of the time during a consecutive four‑week period can be eligible.

The CRA has expanded the list of eligible expenses that it considers deductible to include home internet access fees, and has updated its website to provide some helpful guidance on calculating the home office expense deduction using the traditional “detailed” method.

Deducting home office expenses

The CRA has issued a simplified form (T777S, Statement of Employment Expenses for Working at Home Due to COVID‑19) for deducting home office expenses in 2020, which employees must complete and submit with their 2020 personal income tax return, whether using the simplified or traditional approach. In either case, the amount claimed is deducted in computing the employee’s income and, therefore, should provide a tax savings based on the employee’s marginal tax rate (rather than operating as a tax credit, which would generally reduce tax at the lowest tax rate).

In addition to providing further details for deducting home office expenses under the simplified and traditional methods, the CRA’s website also contains a calculator to assist an employee in determining their deductible home office expenses for 2020.

Employers

Form T2200

To ease the administrative burden on employers who may otherwise have had many employees requesting form T2200 for 2020, the CRA has issued a simplified version – form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, to be used for an employee that is only able to claim expenses related to working from home (employees with other employment expenses must continue to use form T2200). This simplified form removes the onus on employers to calculate the percentage of time the employee was required to work from home and answer other detailed questions regarding the employment arrangement, and so reduces the time commitment for employers to issue this form to employees. The CRA will also permit electronic signature of these forms, for 2020 only, to facilitate faster and remote certification of the forms by the employer.

Although an employer is not required to issue to employees form T2200, or new form T2200S, the employer is responsible for certification of the form’s contents if one is provided. Accordingly, the employer must ensure that the information disclosed in the form is accurate and will need to consider their ability to properly certify the required information, and their ability to undertake the related administration. Where the employer is not prepared to attest to an employee having met the conditions to deduct home office expenses, or is unwilling to incur the necessary time and effort to properly administer the accurate completion and certification of the required form, the employee will not be permitted to claim the related income tax deductions under the traditional method.

The takeaway

The simplification of the process for deducting home office expenses and the introduction of forms T2200S and T777S by the CRA is welcome news for both employees and employers. We will keep you informed of any further related tax authority announcements, e.g. whether Quebec will parallel the simplified process. Although the process may be simpler, employees and employers should still prepare for the required compliance and administration related to employee home office deductions for 2020, including potential employee questions regarding the new rules.

PwC can help you:

• further understand the eligibility for employees’ deduction of home office expenses
• develop an internal communication strategy
• prepare form T2200 (and Quebec form TP-64.3-V) or new form T2200S for your employees, or assist your human resources and tax teams or departments to manage the preparation and dissemination of these forms