The Introduction
The Tax Season is upon us whether or not you’ve started getting your finances in order (most of us haven’t). To be honest, keeping up with all the tax news isn’t anywhere as entertaining as watching Bridgerton on Netflix ( I would know). INDep has done the boring part and would like to get you up to speed with a new deduction you may be eligible for. This Tax Season might be a little different, why, because, finally the Canada Revenue Agency, “The Big Tax Man” is willing to give us the little people a small break.
2020 was a rough year, almost everything changed, where we ate, how we ate, where we went, how we got there, how you worked and how much you worked yet the one thing that seems to matter the most to be eligible for this specific credit, is where we worked. The Canada Revenue Agency has decided to allow employed Canadians the opportunity to deduct a maximum of $400.00 when using the simplified home office expenses method.
Now at INDep we know where you were, sitting on the couch watching Netflix every night, we know where you went, basically nowhere other than joining lines at the grocery store to get toilet paper and probably a 30-minute walk to get the dog out of the house. Maybe next year we can get a deduction for dog walking, video subscriptions, and grocery & food deliveries. We can keep dreaming right?
What is a Deduction?
You might not be sure what a deduction is, let me clear that up. Both the Federal and Provincial governments allow Canadians a few deductions each year, often referred to as tax credits. Some of these deductions are very popular and even automatically applied while filings, like Basic personal amounts, dependents, or spousal amounts while some usually go unclaimed like medical expenses, adoption expenses, and charitable donations to name a few.
But what are deductions? Deductions are simply credits, some are refundable, usually giving you a refund if they are in excess.
While others are Non-Refundable, meaning they can reduce your tax payable but if they are in excess, no refund will be issued.
This is primarily why it can become important to hire a tax professional to handle your tax return, so you don’t miss out on your specific credits and deductions.
So think of them really as credits that can lower your tax bill at the end of each year because they reduce your taxable income. What has happened this season is that the CRA has decided to make it easier for regular people to claim another deduction.
To be fair this deduction isn’t new and out of the ordinary, the CRA has allowed employed professionals to claim home office expenses for years now. This was based on some specific criteria: it being within your contract to work from home, working from home a majority of the time, meeting clients on a regular basis and the list goes on. Employers would sign and fill out Form T2200- “Declaration of Conditions of Employment” and employees would need to claim expenses on Form T777 – “Statement of Employment Expenses”. These forms are still available if you’ve always used them or if you want to deduct them closer to the actual expenses you incurred to generate income.
The Change
The Changes include having Form T2200- “Declaration of Conditions of Employment” shortened, which makes it easier for employers to complete this form for more employees that need to claim detailed amounts.
Yet the change that actually benefits even more Canadians is that without a signed form or using a detailed method, we can now claim a maximum of $400.00 for the year 2020, which is broken down into really, $2 per day for 200 days. The eligibility is very specific but most people that have been stuck indoors working from kitchen counters, bedrooms, and even on the back porch can easily get a portion if not the maximum deduction.
What are the criteria?
You must meet all of the criteria in order to be eligible for the deduction:
- You worked from home in 2020 due to the COVID-19 pandemic, or your employer required you to work from home
- You worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
- Have a completed and signed Form T2200 from your employer (only applicable if the detailed method is used to complete the claim)
- The expenses are used directly in your work during the period.
Just in case you are wondering, the CRA is allowing each individual that has qualified for the criteria the ability to claim the maximum deduction, which means everyone in your household that qualifies can claim their own $400.00.
The Calculation
A few other things are important as well when doing the calculations, for instance, only days that you actually worked count, this means, sick days, vacation days, and leave of absence do not count towards your 200-day maximum. Not like most people were able to take vacations but if you called in sick or requested time off for any reason those days will not contribute.
There is also a calculator to help you claim the home office expense deduction that you are entitled to on the CRA website.
Using the detailed method
So if you wanted to claim more than the flat rate then you might consider having your employer sign the simplified Form T2200, which your employer would need to submit stating that you were required to work from home because of the pandemic. Using this form you will need to keep records of expenses (bills and receipts) you will claim and also will need to complete and submit Form T777 as mentioned above. Yet you might be wondering what can be claimed. Here are a few examples:
Government of Canada
You will be able to find a comprehensive list of eligible home office expenses on the Government website.
Conclusion
CRA has acknowledged that millions of Canadians were confined to their homes watching TikTok videos and binge-watching way too much Netflix last year. Even far more significant, however, they’re also aware of the fact that last year was possibly one of the hardest times for so many Canadians. The pandemic made it very difficult to do things we would usually take for granted, it took so much from us.
It honestly would have been very difficult for all employers across Canada to fill out and sign forms for all their employees, furthermore, it would have also been additionally challenging to file our taxes if everyone had to claim using a detailed approach. Using this simplified method makes it easier to give back to Canadians that have had to get creative with their workspaces. Because let’s be real the money has already been spent.
For those of you that sat at your dining room table or kitchen counter working last year, to keep things above water, there’s compensation at the end of it. Let us at INDep Financial Solutions help you claim this deduction as well as so many other specific credits and deductions you may be eligible for. Because really we could all use a little extra.