If you’ve been working from the couch, the kitchen table or the kids’ bedroom this year because of the novel coronavirus pandemic, you’ll likely be able to claim some home-office costs on your next tax return without showing receipts. But don’t expect a big tax break.
The Trudeau government’s fall fiscal update included a simplified home office deduction that would allow employees working from home due to COVID-19 to claim a tax deduction of up to $400 “without the need to track detailed expenses.”
The Canada Revenue Agency will also, in general, ‘not request that people provide a signed form from their employers,” the government said.
The CRA has yet to release more details on how exactly the simplified deduction is going to work, but tax experts already have a rough idea.
An Ontario-based employee making $65,000, for example, would save nearly $120 in federal and provincial taxes with a $400 deduction, assuming no other sources of income or eligible expenses, according to Lisa Gittens at H&R Block.
It’s a relatively small amount, Gittens says. For higher incomes, the tax break would be larger — all else equal — but not by much, she adds.
“We’re really talking pennies on the dollar.”
Tax deductions lower your taxable income, while tax credits decrease the amount of tax you’ll have to pay on your taxable income.
Ottawa’s decision to make the new home office tax break a deduction means eligible Canadians may see savings on both their federal and provincial taxes, Gittens says.
But not everyone may be able to claim the maximum deduction. So far the government has said what Canadians will be able to claim will depend on the amount of time they’ve spent working from home this year.
Also, the new deduction is only for employees and specifically for those who had to start working from home in 2020 because of COVID-19. If you were toiling away from the home office since before the pandemic or are self-employed, you’ll have to handle your work-from-home expenses the usual way, Gittens says.
For employees, that likely requires filing form T2200, a tax slip issued by employers for claiming expenses incurred during work. For the self-employed, there is form T2125, also known as Statement of Business and Professional Activities.
Also, the new deduction of up to $400 is for expenses like office supplies or the cost of business calls that your employer hasn’t already reimbursed. It does not include things like a new laptop, an ergonomic chair or a standing desk, Gittens warns.
Thankfully, in the early days of the pandemic, the CRA said it would allow employers to reimburse up to $500 tax-free to employees for the purchase of “personal computer equipment” that would allow them to work from home.
The tax agency also recently said that $500-exemption would extend to home-office furniture.
The CRA, however, also clarified $500 is the maximum tax-free reimbursement for each employee, not for each piece of office equipment.
Still, just because you got yourself a more comfortable chair doesn’t mean you’ll get money back for it. Employers are simply allowed, but not required, to reimburse up to $500 tax-free for home office equipment.