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

Posted on by Duane Roberts

Taxes Personal Finances

Jamie Golombek: The CRA rejected my claim for labor costs. Here’s an overview of the rules, along with the steps I’ve taken to fight my reassessment

Publication date:

Feb 10, 2022 • Feb 18, 2022 • 5 minute read • 8 Responses The detailed claim method requires you to add up all the costs incurred and ensure that you have receipts and backup documentation for each claim. The detailed claim method requires you to add up all the costs incurred and ensure that you have receipts and backup documentation for each claim. Photo by Getty Images/iStockphoto

Reviews and recommendations are unbiased and products are selected independently. Postmedia may earn an affiliate commission for purchases made through links on this page.

Millions of Canadians are gearing up for the start of tax return season, systematically collecting tax slips and receipts to start 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, who rejected my claim for labor costs incurred while working from home due to the pandemic.

This ad hasn’t loaded yet, but your article continues below.

You may recall that last summer I received a “review letter” from the CRA asking for more information on several items upon 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 claim for labor costs.

I submitted what I thought was sufficient documentation, and I got my $75 digital news item along with my political donation, but my home office expenses were denied completely because I didn’t send them enough information to justify my claim.

To make sure your 2021 home office expenses run smoothly, let’s run through the rules briefly, along with the additional documentation I spent over the weekend gathering to combat my reassessment.

This ad hasn’t loaded yet, but your article continues below.

Under the Income Tax Act, an employee who has to pay labor costs that he does not reimburse by his employer, including costs for a home office, can claim a deduction for such costs on his tax return.

To be entitled to a deduction for home office expenses, an employee must be required to maintain such an office “by contract of employment”, as certified by the employer on a T2200 form. For the tax years 2020, 2021 and 2022, the CRA states that the requirement to work from home can be met if it has been agreed orally or in writing that the employee will work from home due to the pandemic.

There are two options for calculating your home office expenses deduction for tax years 2020, 2021 and 2022: the temporary lump sum method and the detailed method.

This ad hasn’t loaded yet, but your article continues below.

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

To file the claim, employees must complete a T777S form for work-from-home labor due to COVID-19 and attach it to their income tax return, but they do not must obtain form T2200, Declaration of Conditions of Employment from their employer if the temporary lump-sum method is used. No receipts or documentation of any kind are required to justify your claim.

However, the detailed method requires you to add up all the costs incurred, and make sure you have receipts and backup 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 cannot deduct mortgage costs, capital costs or depreciation (capital expense deduction). Only commissioned employees can deduct their property taxes and home insurance.

This ad hasn’t loaded yet, but your article continues below.

For utilities, rent, and other costs, employees must allocate costs on a “reasonable basis” to determine the portion associated with the use of work. This is usually done by dividing the workspace by the total finished area of ​​the house (including hallways, bathrooms, kitchens, etc.).

You must complete either the T777 form (if you are declaring other labor costs, such as motor vehicle expenses, in addition to the home office expenses) or the shorter form T777S (if you are declaring only the home office expenses) and submit it with your return .

Finally, you must also have a form T2200S Employment Conditions Working from Home Due to COVID-19 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 the draft legislation submitted last week. Please also note that you should not send this form with your return, but should keep it in case the CRA asks for it to be reviewed – as the agency did with me.

This ad hasn’t loaded yet, but your article continues below.

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

CERB recipients who cannot verify their eligibility for the benefit must repay it.

What to do if the CRA starts asking questions about your CERB assistance?

The Canada Revenue Agency headquarters in Ottawa.

Why do we have to file a tax return at all?

A spousal RRSP is used when your spouse or partner has no (or minimal) income and therefore no contribution margin to make an own RRSP contribution.

Taxpayer tests RRSP contribution limits and gets on the wrong side of the CRA

You are required to declare to the CRA if you have more than $100,000 (based on the total expense amount) in foreign stock, such as Apple Inc., Microsoft Corp. or Meta Platforms Inc., in a Canadian unregistered brokerage account.

Own foreign real estate, including inventories? Tell the CRA in time, otherwise you will be fined

The CRA also requested a copy of my T777, along with receipts and documents supporting the claimed expenses for office supplies and other matters, such as using a cell phone for work. Further, it wanted a breakdown of how I could deduct the percentage of these expenses that I could deduct, stating how many square feet were used for both employment and personal purposes, and “a copy of the home office floor plan .”

This ad hasn’t loaded yet, but your article continues below.

Unfortunately, I didn’t have a copy of my home floor plan to send in, but I figured I’d be on the conservative side by claiming only 6.52 percent (based on square footage) of my total home costs for using my home office. I had drawn up a detailed schedule using downloaded information from my online banking of my monthly water, gas and internet bills at home, complete with dates and amounts. Apparently this was insufficient to justify my claim.

Last weekend, I spent over 90 mind-numbing minutes downloading and saving PDF copies of all 12 monthly 2020 statements from each energy supplier to submit to the CRA. I ended up submitting 89 pages of documentation electronically to justify my claim.

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

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the General Manager, Tax & Estate Planning at CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com

†

Sign up for the FP Investor newsletter for more stories like this.

†

This ad hasn’t loaded yet, but your article continues below.

By clicking the sign up button, you agree to receive the above newsletter from Postmedia Network Inc. receive. You can unsubscribe at any time by clicking the unsubscribe link at the bottom of our emails. Postmedia Network Inc. † 365 Bloor Street East, Toronto, Ontario, M4W 3L4 | 416-383-2300

Comments

Postmedia is committed to maintaining a lively yet civilized discussion forum and encourages all readers to share their thoughts on our articles. It can take up to an hour for comments to be moderated before appearing on the site. We ask that you keep your comments relevant and respectful. We’ve enabled email notifications – you’ll now receive an email when you get a reply to your comment, there’s an update to a comment thread you’re following, or a user follows comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.

This post Everything you need to know about declaring home office expenses on your tax return

was original published at “https://financialpost.com/personal-finance/everything-you-need-to-know-about-claiming-home-office-expenses-on-your-tax-return”

Related Posts