The 2020 year was full of uncertainty and challenges, resulting in many Canadians facing financial stress and makeshift working conditions. The Canada Revenue Agency (CRA) responded to the COVID-19 pandemic with initiatives to ease financial burdens and streamline the unusual tax year.
The temporary flat rate method is one such deduction, allowing eligible taxpayers to claim up to $400 for home office expenses. Learn if you meet the eligibility requirements, how to calculate the deduction and about other home office-related tax credits in this article.
Temporary flat rate method
Due to the COVID-19 pandemic, the CRA introduced a temporary flat rate method for the home office deduction. This method can only be used for the 2020 tax year to alleviate some expenses incurred from office closures. Unlike the traditional detailed method, you do not need to calculate your workspace’s size, provide supporting documentation, or have your employer complete a Form T2200S or a Form T2200.
Related read: 2020 Tax Filers Face Unique Issues
The maximum amount that is available under this temporary tax credit is $400. You may not get the entire amount, but this credit could reduce your overall tax bill. To be eligible, you must have:
- Worked from home more than 50% of the time
- Worked from home for at least four consecutive weeks in 2020 due to the pandemic
- Only claimed home office expenses and no other amounts as employment expenses on line 22900
- Your employer must not have reimbursed you for home office expenses
If you’re eligible, the next step is to determine how many days you worked from home in 2020. Note that vacation days, days off, sick days or other leaves of absence do not count towards the deduction. Only days you worked from home full-time or part-time count.
Once you determine that number, multiply it by $2. This amount is what you claim on your tax return on line 9939, up to a maximum of $400. You must also complete Form T777S and attach it to your return — though most tax software will take you through this process step-by-step.
On March 23, 2020, Valentina’s employer asked her to work from home as a safety precaution for the COVID-19 pandemic. For the remainder of the 2020 year, Valentina worked from home. She occasionally went into the office to drop off and pick up paperwork, but this only consumed 10% of her working hours. Valentina is not claiming any other employment expenses for the 2020 year, and her employer didn’t reimburse any home office expenses.
Valentina meets all the criteria for the home office deduction under the temporary method. Between March 23, 2020, and December 31, 2020, Valentina worked a total of 188 days from home, excluding statutory holidays and one week of vacation. Her home office deduction is equal to $376 ($2 x 188 days). Valentina will claim $372 on line 9939 and complete and attach Form T777S when filing her 2020 tax return.
Employees who work from home have always had the option to claim home office expenses on their tax returns. However, the process can be quite intense under the traditional detailed method. You must calculate exactly how much you paid for your home office and provide supporting documentation for incurred expenses. Also, you must complete Form T2200S or Form T2200, which your employer must sign.
If you were required to work from home due to the COVID-19 pandemic, this option is still available to you. The eligibility criteria include:
- You worked from home due to the pandemic, or your employer requires you to work from home
- You were required to pay your own home office expenses
- You work from home more than 50% of the time for at least four consecutive weeks, or you only use your workspace to earn employment income
- Your expenses are used directly in your work
- Your employer has completed and signed Form T2200S, or Form T2200
How do you choose the proper method?
For the 2020 tax year, both the detailed and temporary methods are available to individuals who worked from home. Although, they are mutually exclusive, which means you must pick one option. You might be wondering which method you should use. There are two things to consider here, documentation and dollar amount.
In terms of documentation, significant paperwork is involved with the detailed method. You must provide receipts for home office expenses, measure your workspace and have your employer sign an official form. If you didn’t keep receipts or generally don’t want to go through the hassle, you could always use the temporary method, which requires much less work.
In terms of the dollar amount, it’s worth calculating the credit you would receive under both options. From there, you can determine if it’s worth it to file the additional paperwork required under the detailed method. If the amounts are relatively similar, you may as well use the temporary method. If you receive a much larger deduction under the detailed method, it could be worth your time to file the additional paperwork.
It’s time to file your 2020 tax return
The deadline to file your personal income tax return is fast approaching: April 30, 2021. If you were unaware of the temporary method for the home office deduction and are eligible, be sure to update your return before filing to reduce your overall tax bill.