The employee tax perks of working from home

The daily commute to and from work is, generally, everybody’s least favourite part of the work day. In recent years that commute has gotten longer and longer as many Canadians, especially those working in large urban centers, have moved further and further away from their workplaces in search of affordable family housing.

The good news for such employees is that changes in technology and the Canadian workplace over the past quarter century have made the option of working from one’s home, at least on an occasional or part-time basis, almost the norm among Canadian employees. For most, the opportunity to take a break from sitting in traffic gridlock or rushing to catch the commuter train is a valued employment perk.

While such advantages would likely, even on their own, be enough to make working from home an attractive option, there is another even more compelling benefit. That benefit is in the form of tax deductions claimable for home-related expenses by qualifying individuals who work from home. And, such deductions, in varying forms, can be available whether an individual is an employee working on salary, or a commission employee.

Of course, as with any tax deduction, there are conditions which must be met in order to qualify. Employees, regardless of whether they earn a salary or are paid by commission, must meet one of the following conditions in order to claim any home office deduction.

  • The home work space is where the individual mainly (more than 50% of the time) does their work; or
  • the individual uses the workspace only to earn his or her employment income. He or she must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of his or her employment duties.

Once either of these threshold criteria is met, a broad range of costs become deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to his or her work space, such as the cost of electricity, heating and home maintenance.

Where an individual who qualifies under either of the criteria outlined above is a commission employee, an even broader range of costs become deductible. In addition to costs for electricity, heating, and home maintenance, a commission employee can also deduct a proportionate share of costs incurred for property taxes and home insurance.

There is no specific formula for determining the proportion of eligible costs which can be deducted for qualifying home office expenses. The employee can determine that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home or he or she can make that calculation based on the number of rooms in the house relative the number of rooms used for work-related purposes. Whichever method is chosen, the most important consideration is that the approach taken (and the expenses claimed) be reasonable. In all cases, the Canada Revenue Agency can ask the taxpayer to provide documentation and support for claims made.

For example, an employee who lives in a 2000 square foot house and uses a 200 square foot room as a home office can (assuming the basic criteria outlined above are satisfied) claim 10% of his or her costs for electricity, heat, and home maintenance (where that maintenance involved the home work space) incurred during the tax year. If that employee works on commission, he or she can also deduct 10% of costs incurred for property taxes and home insurance.

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office. Each such employee must file, with the income tax return for the year, a Form T2200. On that form, the employer must certify that the employee was required to use a portion of his or her home for work-related purposes, indicate what percentage of the employee’s duties were carried out at that home office and, finally, confirm that the employee is not being reimbursed for any home office expenses incurred. Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement. And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received.

In order to make a claim for home office expenses, there is clearly some paperwork involved. All employees seeking to make such a claim must total the amount of bills paid over the course of the year for electricity, heat, and any of the inevitable home maintenance costs. Those working on commission must also verify amounts paid for property taxes and home insurance. However, given that such efforts will produce a deduction from income for tax purposes for costs which would have been incurred in any case, it is likely that most employees would consider the return on that investment of time well worth it.

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.

Posted: Friday, October 26th, 2018 | Categories: Tax Alerts.

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