Everything you need to know about claiming home office expenses on your tax return

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Hundreds of thousands of Canadians are gearing up for the beginning of the tax submitting season, methodically gathering tax slips and receipts with the intention to start making ready their 2021 returns, however I’m nonetheless caught on 2020. That’s proper, final week, I used to be formally reassessed by the Canada Income Company, which rejected my declare for employment bills incurred whereas working from house as a result of pandemic.

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It’s possible you’ll recall that final summer time I acquired a “review letter” from the CRA asking for extra details about varied gadgets on my return, together with my declare for the brand new digital information subscription tax credit score, proof that I made a small political contribution and, most importantly, help for my employment bills declare.

I submitted what I assumed was ample documentation, and I used to be allowed my $75 digital information credit score together with my political donation, however my house workplace bills had been denied of their entirety as I didn’t ship them ample info to justify my declare.

To ensure your house workplace bills for 2021 undergo with no hitch, let’s briefly evaluation the foundations, together with the extra documentation I spent final weekend gathering with the intention to battle my reassessment.

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Underneath the Revenue Tax Act, an worker who’s required to pay for employment bills for which they aren’t reimbursed by their employer, together with bills for a house workplace, might be able to declare a deduction on their return for such bills.

To be entitled to deduct house workplace bills, an worker should be “required by the contract of employment” to keep up such an workplace, as licensed by the employer on a T2200 type. For the 2020, 2021 and 2022 tax years, the CRA has acknowledged that the requirement to work at home could be happy if there was a verbal or written settlement that the worker was working from house as a result of pandemic.

There are two choices to calculate your deduction for house workplace bills for the 2020, 2021, and 2022 tax years: the short-term flat price technique and the detailed technique.

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In the event you labored greater than 50 per cent of the time from house for a interval of a minimum of 4 consecutive weeks within the 12 months because of COVID-19, you possibly can declare $2 for every day you labored at house throughout that interval, to a most of $500 in 2021 and in 2022, up from the $400 most in 2020.

To make the declare, staff want to finish a T777S – Statement of Employment Expenses for Working at Home Due to COVID-19 type and connect it to their revenue tax return, however they do not must receive a T2200, Declaration of Conditions of Employment type from their employer if the short-term flat price technique is used. No receipts or documentation of any variety are wanted to justify your declare.

Underneath the detailed technique, nevertheless, you will need to tally up all of the bills you incurred, ensuring you have got receipts and back-up documentation for every declare. Bills you possibly can declare embody: utilities, house web, hire, upkeep and minor restore prices, and workplace provides akin to envelopes, paper, pens and sticky notes. However you possibly can’t deduct mortgage funds, capital bills or depreciation (capital price allowance). Solely commissioned-based staff can deduct their property taxes and residential insurance coverage.

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For utilities, hire and different bills, staff must allocate the bills on a “affordable foundation” to find out the portion associated to employment use. That is usually performed by dividing the workspace space by the house’s whole completed space (together with hallways, bogs, kitchens, and so on.).

You should full both the T777 form (if you happen to’re claiming different employment bills, akin to motorized vehicle bills, along with house workplace bills) or the shorter T777S form (if you happen to’re solely claiming house workplace bills), and file it together with your return.

Lastly, you will need to additionally receive a T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19 type out of your employer. This kind is shorter and requires much less info than the T2200 required in earlier years. It not must be bodily signed by your employer, because of draft laws launched final week. Additionally word that you simply don’t ship this manner in together with your return, however ought to maintain it in case the CRA asks to evaluation it — because the company did with me.

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Within the evaluation letter I acquired final summer time, the CRA requested me for quite a lot of info, together with a replica of that T2200. The CRA then requested for a “detailed breakdown of the quantity claimed and the supporting paperwork,” noting that “credit-card statements, financial institution statements and cheques by themselves don’t give sufficient info to help a declare.”

The CRA additionally requested for a replica of my T777, together with receipts and paperwork to help the bills claimed for workplace provides and different issues akin to employment use of a cellphone. Moreover, it needed a breakdown of how I calculated the proportion of those bills I can deduct, indicating the variety of sq. toes used for each employment functions and private functions, and “a replica of the ground plan of the residence with the house workplace.”

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Alas, I didn’t have a replica of my house ground plan to ship in, however I figured I might be on the conservative facet by solely claiming 6.52 per cent (primarily based on sq. footage) of my whole house bills for using my house workplace. I had ready an in depth schedule, utilizing downloaded info from my on-line banking of my month-to-month hydro, fuel and residential web bills, full with dates and quantities. Apparently, this was inadequate to justify my declare.

Final weekend, I spent a great 90 minutes mind-numbingly downloading and saving PDF copies of all 12 month-to-month 2020 statements from every utility supplier to undergo the CRA. In the long run, I electronically submitted 89 pages of documentation to justify my declare.

Will I achieve success? I’ll get again to you in one other six months …

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Property Planning with CIBC Non-public Wealth in Toronto. [email protected]

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