Canada:
Tax Guidance To Canada Revenue Agency’s Extended Work-from-home Reimbursement To Home Office Equipment – A Canadian Tax Lawyer’s Analysis
09 December 2020
Rotfleisch & Samulovitch P.C.
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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.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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