Home Office Deductions for Canadians
The working from home tax credit is still available in Canada for your 2021 taxes. More people are working from home on a permanent or hybrid basis. Employees who work from home have the right to deduct home office expenses on their Canadian tax return. If you work from home, keep track and take these tax deductions to avoid paying more tax than you have to.
Detailed Method vs Temporary Flat Rate Method
Home office expenses can be claimed in one of two ways.
To use the detailed method, you’ll need to provide many details about your home to the government. Sometimes the tax people come over to inspect, but this is rare.
First thing you’ll need to know is the square footage of your home office and the total square footage of your whole home. To calculate the square footage of a room, measure the length of the walls and multiply those numbers together. For example, if the room your office is located in is 16 feet by 10 feet, your home office is 160 feet. For the total square footage of your home, measure each room and then add up the numbers.
Next, categorize your home office expenses. Tally them up for the year and sum a total. Common home office expenses include:
- Mortgage Interest
- Insurance (For commission employees only)
- Property Taxes (For commission employees only)
Now it’s time to calculate the tax deduction. Divide your home office square footage by your home’s square footage. After that, multiply this number by your total home office expenses. This amount is deductible in the detailed method.
There may be additional expenses to consider such as phone, internet, and maintenance. Some of these may be completely deductible under the detailed method, but may not be. It’s best to contact the Canada Revenue Agency (CRA) to confirm, or consult with a professional if you are unsure. If you are doing your own taxes this year, you must fill form T777 and file it with your T1 to get the deduction.
Deductible Items for the Tax Credit
What is deductible depends on your situation. Employees earning a salary have limited deductions. Employees earning a commission are eligible for a bit more because they often incur more expenses when doing their job. Self-employed individuals also have more deduction opportunities. Contact CRA or a qualified CPA tax accountant each year as the qualifications change all the time.
To use the detailed method, you must have a signed T2200 from your employer. This form will outline what is deductible and what is not deductible. If you have been reimbursed for an expense, it is not deductible. There is also a temporary additional option for the 2020, 2021 & 2022 tax years of your employer providing a T2200S. The T2200S is a simplified version that has fewer details and lines to fill out.
Keep all forms to provide to CRA if requested. They do not need to be included with your tax return.
Temporary Flat Rate Method
The temporary flat rate method has been increased to a maximum of $500 for 2021 and 2022. In 2020, the maximum was $400. You do not need a signed T2200 or T2200S to use this method. You get to deduct $2 per day for each day you worked from home up to the maximum amount.
Which Tax Credit is Best For You
Understanding which working from home tax credit is best for you depends on what forms you have signed by your employer and how much effort you want to put into it.
To use the detailed method, you must have a signed T2200 or T2200S from your employer. If you did not receive this form, you cannot use the detailed method. The detailed method is more work, but potentially has a higher tax credit. If you just want $2 per day without having to do anything extra, best to just take the temporary flat rate while it’s available.
If your employer provided a T2200 or T2200S for you, it may be worthwhile to look at your options. The reason the government gives you a faster option in the flat rate is it potentially saves them money while saving you time. But if you want to be sure you are getting the maximum tax credit available, you’ll need to add up your expenses and calculate your tax credit to see if you’ll get more than $500. If you need help figuring this out, please feel free to consult with us.
Government of Canada Tax Credits
For authoritative information, check out the Government of Canada website about line 22900.