Tax Guidance to Canada Revenue Agency’s extended work-from-home reimbursement to home office equipment – A Canadian tax lawyer’s analysis
Canada Revenue Agency extends work-from-home reimbursement from computer equipment to home office equipment
In late October 2020, the Canada Revenue Agency (CRA) provided some good news at the Canadian Tax Foundation’s annual roundtable session and one new policy specifically dealt with employers’ reimbursement of computer and office equipment.
In April, the CRA issued a technical interpretation concerning employee taxable benefits that employees may have received while working from home due to covid-19. The CRA was asked two questions at the time: 1. Whether an allowance paid by an employer to the employee to acquire office equipment so that they can work from home should be treated as taxable benefit. 2. If the amount paid by the employer is conditional on a proof of actual purchase, would the CRA treat it differently? The CRA responded to these questions by indicating that a general allowance received by the employee would be considered a taxable benefit, but during the covid-19 pandemic, it would be “willing to accept that the reimbursement of an amount not exceeding $500 for the purchase of personal computer equipment will not be taxable if it is mainly for the benefit of the employer.”
The max reimbursement amount is for each employee rather than each piece of equipment
At the Canadian Tax Foundation’s roundtable session, the CRA stated that it had no plans to increase the $500 reimbursement amount, but would “continue to carefully monitor all developments relating to the covid-19 pandemic and will take further actions as necessary.” When asked about whether it would allow the reimbursement amount to also cover home office furniture such as desks, chairs and so on, the CRA announced its position at the roundtable session that it would allow the expansion to include home office equipment.
However, the $500 reimbursement amount is the maximum allowed for each employee as opposed to each piece of office equipment. For example, if an employee purchases a personal laptop for $450 and a desk for $150, and the employer later pays the employee $600 for reimbursement, the amount over $500 (which is $100 in this example) will be treated as taxable benefit under the CRA’s new policy and included in the employee’s income.
Who is eligible to deduct home office expenses?
An employee can deduct home office expenses if he or she is required to maintain a home office that was not reimbursed under an employment contract, and the home office must meet either of the following conditions:
- It must be the employee’s principle place of employment, or
- The space must be used by the employee exclusively for the purpose of earning income from employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the employment duties.
To deduct home office expenses, an employee would generally need
- a formal work-from-home written agreement under the employment contract, and
- Form 2200 – Declaration of Conditions of Employment, signed and prepared by the employer.
Many people only work from home because of the covid-19 pandemic, however, they may still be able to deduct the home office expenses. The test is whether the employee worked from home principally and the standard can be met if the employee works at home for more than 50 percent of time throughout the calendar year. The preliminary discussion between the CRA and CPA Canada also indicates the CRA is leaning towards accepting this test during the covid-19 pandemic.
The home office expense deductibility between non-commissioned sales employees and commissioned sales employees also varies. For example, non-commissioned employees can only deduct a reasonable portion of rent, utilities, repairs and maintenance, and supplies while commissioned employees can not only deduct these, but also a reasonable portion of property taxes and home insurance up to the amount of commission income. The standard of reasonable portion is determined on the basis of the square footage of your work space as a percentage of the total square footage of your home. However, the amount of deduction for expense will be reduced if the space is also used for personal reasons.
Pro Tax tips – employees should keep the documentation for all home office expense
Although the CRA has added home office equipment to the list of expenses that employees can be reimbursed tax-free, it is highly recommended that an employee should keep the documentation for all the expenses deducted in case of a future CRA review or tax audit. If you have questions regarding your eligibility for home office expense deductions, contact our law firm to speak with an experienced Canadian tax lawyer for tax guidance.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."