As the pandemic dragged on into 2022, many employees continued to work from home for pandemic-related reasons. And probably at least as many employees reached an agreement with their employer that they would be able to continue to work from home for least some part of each work week, on a permanent basis. And, as was the case in 2020 and 2021, all of those workers may be entitled to claim a deduction on their 2022 tax return for expenses incurred to work from home.
Employees who work from home have always, assuming the requisite criteria are satisfied, been able to claim a portion of household expenses incurred. Doing so required the employee to obtain certification from the employer of the work-from-home arrangement, calculate household expenses incurred, determine the portion of such expenses which were attributable to the home office, and claim that amount on the annual return. Beginning in 2020, however, the Canada Revenue Agency (CRA), recognizing the greatly increased number of taxpayers who would be claiming home office expenses for the first time, relaxed the rules governing eligibility for claiming a deduction for home office expenses, and also introduced a new, temporary “flat rate” method of calculating the deduction for such expenses. The CRA has indicated that those more flexible rules, including the flat rate method, will continue to be allowed for the 2022 tax year.
Although the flat rate method is widely available, taxpayers who wish to do so and who qualify are still entitled to use the pre-existing detailed method under which actual eligible expenses incurred during the year are tallied and a percentage of those expenses claimed on the 2022 tax return. Given that the maximum deduction which can be claimed for the 2022 tax year using the flat rate method is just $500, taxpayers who worked from home for an extended period of time and who are willing to make the effort to retain and organize records for home office expenses, and to calculate the available deduction, will likely be rewarded with a better tax result.
Using the flat rate method
Although the flat rate method of claiming work from home expenses isn’t likely to produce the most beneficial tax result for the taxpayer, it has the undeniable advantage of greater simplicity.
In order to claim a deduction for costs related to a work-from-home space using the flat rate method, the following conditions must be met.
- The employee worked from home during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); and
- The employee worked from home for more than 50% of the time for a period of at least four consecutive weeks during 2022.
In addition, the expenses claimed by the employee must be directly related to their work, and the employee must not have been fully reimbursed for such expenses by their employer. Where the employer reimburses only a portion of such expenses, the employee may still make a claim under the flat rate method, assuming the other criteria are met.
A taxpayer who meets all of the criteria for using the flat rate method can claim $2 for each day they worked from home during the four-consecutive-week qualifying period. They can then claim $2 per day for any additional days of working from home during the year. However, there is an overall cap on the amount of home office expenses which can be claimed under the flat rate method. For 2022, the maximum which can be claimed is $500. There is no requirement that the employee obtain a T2200 or a T2200S from the employer in order to make a flat rate claim, and no requirement that the employee keep or provide receipts for any costs incurred.
Using the detailed method
In order to claim a deduction for costs related to a work-from-home space using the detailed method, an employee must have worked from home for at least 50% of the time, during at least four consecutive weeks during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home).
Where work-from-home costs are claimed using the detailed method, the taxpayer ‘s employer must provide a signed a Form T2200S – Declaration of Conditions of Employment for Working at Home Due to Covid-19 or Form T2200 – Declaration of Conditions of Employment, certifying the work from home arrangement and the fact that the employee paid the costs relating to such arrangement.
Where there is any kind of reimbursement provided by the employer, 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. Finally, the employee must keep all documents (invoices etc.) supporting their claim for work-from-home expenses. While those documents do not have to be filed with the return for 2022, the CRA has the right to ask for them in order to verify the claims by the taxpayer.
Once these threshold criteria are met, a broad range of costs becomes deductible by the employee. Specifically, a salaried employee can claim and deduct the part of specified costs that relate to their workspace, such as rent; utilities costs like electricity, heating, and water (or the portion of a condo fee attributable to such utilities costs); home maintenance and minor repair costs; and internet access (but not internet connection) fees.
Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses; the CRA provides detailed information on its website of how such determination is made. Generally, the employee determines the percentage based on the square footage of the workspace as a percentage of the overall square footage of the home. Where the workspace is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work-from-home activities. Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use.html.
Planning ahead for 2023
Employees who are now working from home at least part of the time as a permanent working arrangement will, of course, be able to claim eligible home office expenses in 2023 and future tax years. The rules governing such claims will, however, change beginning in 2023, and employees who wish to make such a claim for 2023 should be aware of and planning for those changes now.
Essentially, the federal government has determined that, starting with the 2023 tax year, the more flexible rules which governed the deduction of expenses related to working from home (including the flat rate method) during 2020, 2021, and 2022 are no longer needed and therefore will no longer be available. Employees who wish to claim home office expenses for 2023 will need to qualify under the “traditional” rules which governed such expense claims prior to 2020.
Those rules require that the employee meet the following criteria in order to claim home office expenses:
- The employee was required by his or her employer to work from home during the year; and
- The work at home space is where the individual mainly (more than 50% of the time) did their work during the year; or
- The individual uses the workspace only to earn their employment income. They must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of their employment duties.
The employee must also obtain from their employer a completed and signed Form T2200 – Declaration of Conditions of Employment, certifying the work from home arrangement and the fact that the employee is responsible for paying the costs associated with such arrangement.
Employees who can qualify to claim a deduction under the rules for 2023 will need to retain the records needed to calculate such deduction using the detailed method (the only one available for 2023). At this point, all that’s required is to set aside things such as property tax and utility bills, receipts for purchases of office supplies, etc., to be used next spring when completing the return for 2023 and claiming a deduction for such expenses.
While calculating the expenses which qualify for a home office expense deduction on the return for 2022 isn’t particularly complicated, the eligibility criteria for the deduction and determining the percentage of expenses eligible for that deduction can be detailed, especially as the range of work-from-home arrangements and work-from-home workspaces is almost limitless. The CRA has provided on its website a very helpful summary of both the general rules for claiming home office expenses for 2022, as well as guidance with respect to particular situations – for example, where two spouses share the same home office space. That information and guidance (including an FAQ document) can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses.html.
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.