If you are among the many employees who were asked to work at home last year because of COVID-19, you may be wondering how you should claim your home office expenses on your 2021 tax return.
Fortunately, the Canada Revenue Agency (CRA) has released new guidelines that should simplify the process for both employees and employers. For the 2021 and 2022 tax years, employees working from home due to the COVID-19 pandemic may be able to claim up to a maximum of $500 (last year in 2020 the maximum was $400) using the temporary flat rate method, to calculate their home office expenses as announced in the Fall Economic Statement by the Government of Canada.
As an employee, you may be able to claim certain home office expenses (work-space-in-the-home expenses, office supplies, and certain phone expenses).
This deduction is claimed on your personal income tax return. Deductions reduce the amount of income you pay tax on, so they reduce your overall income tax liability.
How do I apply for a tax break?
Typically, the CRA requires employees who are claiming this deduction to get their employer to fill out the T2200 form, which certifies that working from home is a condition of your employment. But a new form, T777S , can make claiming expenses easier.
Here are the two ways to claim expenses:
Temporary flat rate method
The T777S lets you make a claim without a signed form from your employer or even receipts from your expenses.
You can claim $2 for each day you worked remotely, up to a maximum of $500 — 250 working days — per individual. Sharing your home office with someone else? You can both make the maximum claim.
If you’ve had higher expenses, you might be able to write off more than what’s offered through the T777S. To do that, submit a claim with an employer-signed T2200S form (a shorter version of the T2200).
This lets you claim a portion of your home’s operating expenses, including heat, electricity, water, maintenance (like cleaning supplies and light bulbs), condo fees and even rent.
To calculate your claim, you need to determine how much of your home the office takes up. For easy math, if your home is 1,000 square feet and the office takes up 200 square feet, you can claim 20 per cent of your total housing expenses.
That doesn’t include expenses like office furniture and computer equipment. However, the CRA is allowing employers to reimburse employees for up to $500 worth of expenses tax-free. You’ll need to check with your company’s human resources department to verify their participation — and keep your receipts.
What expenses can I deduct with a T2200S form?
Here’s what you can and can’t claim:
Phone: Yes, you can deduct a portion of your cell phone plan with a T2200S under certain conditions. The plan itself needs to be reasonable, and you need to prove you used the claimed amount for work.
Internet: Yes, but, again, you can only claim the portion used exclusively for work.
Consumable supplies: Yes, you can deduct the total cost of things like pens, paper, stamps, and ink cartridges that are used solely for work.
Furniture and tech: No, items like chairs, desks, and monitors are permanent and thus considered capital expenses, which can’t be deducted by employees.
Mortgage payments, property taxes, and insurance: No, and … it depends; your mortgage payment is not considered an expense. But employees who work on commission can claim property taxes and insurance.
Clothing: No, even if your job requires special clothing, you can’t deduct the costs.
If in doubt, CRA has a handy calculator to help you add up your claimable expenses based on your chosen filing method.
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If you have any question regarding your personal tax return or tax deductions in general in the Surrey and Lower Mainland area, contact us today to set up a phone consultation to discuss your financial needs.
Original source: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html