Employers can now reimburse employees up to $500 for home office equipment purchased because of COVID-19 restrictions. These home office expenses will be treated as a tax-free benefit for employees. Employees can also claim up to $400 for work-from-home office equipment on their taxes using a new (and simplified) home office expense deduction. Today, we’ll look at how these new guidelines work for employers and employees. (This article is designed to provide general information regarding home office expenses; it’s not intended to serve as legal, tax or other financial advice.)
What are the guidelines for reimbursing employees for home office expenses during COVID-19?
In April 2020, the Canada Revenue Agency (CRA) issued a technical interpretation outlining when computer equipment purchased by home workers is a taxable or non-taxable benefit. The CRA concluded that reimbursements that primarily benefit the employee are a taxable benefit and reimbursements that primarily benefit the employer are a non-taxable benefit. The CRA said that in the context of COVID-19, the purchase of computer equipment “primarily benefits the employer, so that it does not result in a taxable benefit.” (Source: Which home-office expenses can be reimbursed tax-free?)
However, the guidelines for eligible home office equipment claims have expanded, according to a CRA roundtable at the Canadian Tax Foundation conference in October 2020.
The Investment Executive reports that Canadian employers can now reimburse their employees up to $500 (per employee) for home office equipment that was purchased due to COVID-19 work-from-home orders. This reimbursement is not limited to computer equipment; it can include chairs, desks and other home office items.
In their article, CRA letting employers reimburse home office furniture tax-free during Covid-19, the Investment Executive reports, “During the CRA roundtable portion of the conference, the official indicated that the $500 threshold for the tax-free employer reimbursements would now be extended to office furniture or other home office items and not limited to computers.”
To keep this as a tax-free, reimbursable benefit, employees must submit an invoice or proof of purchase to their employer for each work-from-home claim.
For expenses that go beyond $500, there’s a new way for work-from-home employees to claim home office expenses on their 2020 taxes—and it’s simpler than the old way.
The simple way to claim COVID-related home office expenses on your 2020 taxes
Employees who work at home have always been able to deduct some of their home office expenses but the CRA has simplified the process for employees who started working from home because of COVID-19.
“To simplify the process for both taxpayers and businesses, the CRA will allow employees working from home in 2020 due to COVID-19 with modest expenses to claim up to $400, based on the amount of time working from home, without the need to track detailed expenses, and will generally not request that people provide a signed form from their employers. This measure will help taxpayers access deductions they are entitled to receive and simplify the tax filing process.”
- Government of Canada’s Fall Economic Statement 2020 (Chapter 4, section 8.3)
This simplified method might not be the most beneficial one for tax purposes so employees can still claim home office expenses the old way.
The more complicated way to claim COVID-related home office expenses on your 2020 taxes
The CRA says, “You can deduct expenses you paid in 2020 for the employment use of a work space in your home, as long as you meet one of the following conditions:
- The work space is where you mainly (more than 50% of the time) do your work.
- You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.”
With this calculation, the employer must sign the Declaration of Conditions of Employment (form T2200). For more details on what you can and cannot claim as a home-office expense, visit the Government of Canada website. Be sure to contact your accountant for advice on which calculation comes with more tax advantages based on your situation.
Because of COVID-19, employers and employees have more options for managing home office expenses (for 2020) so make sure you take advantage of these updated guidelines.