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

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Jamie Golombek: The CRA rejected my claim for employment expenses. Here’s a review of the rules, along with the steps I’ve taken to fight my reassessment

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Millions of Canadians are gearing up for the start of the tax filing season, methodically gathering tax slips and receipts in order to begin preparing their 2021 returns, but I’m still stuck on 2020. That’s right, last week, I was formally reassessed by the Canada Revenue Agency, which rejected my claim for employment expenses incurred while working from home due to the pandemic.

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You may recall that last summer I received a “review letter” from the CRA asking for more information about various items on my return, including my claim for the new digital news subscription tax credit, proof that I made a small political contribution and, most significantly, support for my employment expenses claim.

I submitted what I thought was sufficient documentation, and I was allowed my $75 digital news credit along with my political donation, but my home office expenses were denied in their entirety as I did not send them sufficient information to justify my claim.

To make sure your home office expenses for 2021 go through without a hitch, let’s briefly review the rules, along with the additional documentation I spent last weekend gathering in order to fight my reassessment.

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Under the Income Tax Act, an employee who is required to pay for employment expenses for which they are not reimbursed by their employer, including expenses for a home office, may be able to claim a deduction on their return for such expenses.

To be entitled to deduct home office expenses, an employee must be “required by the contract of employment” to maintain such an office, as certified by the employer on a T2200 form. For the 2020, 2021 and 2022 tax years, the CRA has stated that the requirement to work from home can be satisfied if there was a verbal or written agreement that the employee was working from home due to the pandemic.

There are two options to calculate your deduction for home office expenses for the 2020, 2021, and 2022 tax years: the temporary flat rate method and the detailed method.

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If you worked more than 50 per cent of the time from home for a period of at least four consecutive weeks in the year due to COVID-19, you can claim $2 for each day you worked at home during that period, to a maximum of $500 in 2021 and in 2022, up from the $400 maximum in 2020.

To make the claim, employees need to complete a T777S – Statement of Employment Expenses for Working at Home Due to COVID-19 form and attach it to their income tax return, but they do not need to obtain a T2200, Declaration of Conditions of Employment form from their employer if the temporary flat rate method is used. No receipts or documentation of any kind are needed to justify your claim.

Under the detailed method, however, you must tally up all the expenses you incurred, making sure you have receipts and back-up documentation for each claim. Expenses you can claim include: utilities, home internet, rent, maintenance and minor repair costs, and office supplies such as envelopes, paper, pens and sticky notes. But you can’t deduct mortgage payments, capital expenses or depreciation (capital cost allowance). Only commissioned-based employees can deduct their property taxes and home insurance.

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For utilities, rent and other expenses, employees need to allocate the expenses on a “reasonable basis” to determine the portion related to employment use. This is typically done by dividing the workspace area by the home’s total finished area (including hallways, bathrooms, kitchens, etc.).

You must complete either the T777 form (if you’re claiming other employment expenses, such as motor vehicle expenses, in addition to home office expenses) or the shorter T777S form (if you’re only claiming home office expenses), and file it with your return.

Finally, you must also obtain a T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19 form from your employer. This form is shorter and requires less information than the T2200 required in previous years. It no longer needs to be physically signed by your employer, as a result of draft legislation introduced last week. Also note that you don’t send this form in with your return, but should keep it in case the CRA asks to review it — as the agency did with me.

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In the review letter I received last summer, the CRA asked me for a variety of information, including a copy of that T2200. The CRA then asked for a “detailed breakdown of the amount claimed and the supporting documents,” noting that “credit-card statements, bank statements and cheques by themselves do not give enough information to support a claim.”

The CRA also asked for a copy of my T777, along with receipts and documents to support the expenses claimed for office supplies and other things such as employment use of a cellphone. Furthermore, it wanted a breakdown of how I calculated the percentage of these expenses I can deduct, indicating the number of square feet used for both employment purposes and personal purposes, and “a copy of the floor plan of the residence with the home office.”

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Alas, I didn’t have a copy of my home floor plan to send in, but I figured I would be on the conservative side by only claiming 6.52 per cent (based on square footage) of my total home expenses for the use of my home office. I had prepared a detailed schedule, using downloaded information from my online banking of my monthly hydro, gas and home internet expenses, complete with dates and amounts. Apparently, this was insufficient to justify my claim.

Last weekend, I spent a good 90 minutes mind-numbingly downloading and saving PDF copies of all 12 monthly 2020 statements from each utility provider to submit to the CRA. In the end, I electronically submitted 89 pages of documentation to justify my claim.

Will I be successful? I’ll get back to you in another six months …

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com

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