CRA changes mean that different hybrid work arrangements can have different tax implications for employees.vectorikart/iStockPhoto / Getty Images
Canadians who have reluctantly returned to their offices for three days per week or more throughout 2023 may be in for another unpleasant experience this tax season: They won’t qualify for the home-office expenses deduction, even if they worked from home part of the time.
Nearly four years since the start of the pandemic, which made telecommuting and hybrid employment ubiquitous, the Canada Revenue Agency has rejigged the rules for claiming work-from-home expenses. Among the changes: Employees must have worked remotely more than 50 per cent of the time to be eligible for the deduction.
The rules mean that different hybrid work arrangements can have different tax implications for employees, accountants warn. For example, a mandatory or voluntary arrangement to spend two days a week in the office would generally allow full-time employees to claim expenses. A three-days-a-week arrangement would not.
“This is one of the trickiest parts for individuals who are maybe doing this for the first time,” said Stefanie Ricchio, a chartered professional accountant and spokesperson for TurboTax Canada, the tax software company.
Specifically, the rules require that employees claiming expenses have worked from home more than half the time for a period of at least four consecutive weeks. That’s a potential silver lining for those who’ve only recently started going to the office for a majority of the week, as they’ll still be able to claim expenses for the part of the year during which they mostly worked from home.
The changes follow the CRA’s scrapping of what’s known as the “flat-rate method” for claiming the home-office deduction, which allowed remote employees to claim $2 per day spent working out of their home, up to a maximum of $500. A more complicated filing option was available for those claiming employment expenses beyond home-office costs, among other specific scenarios.
But starting with the 2023 tax year, even remote and hybrid workers will have to provide more details. The process involves tallying up home expenses such as utilities, rent and internet bills, designating a portion of them as remote-work costs and getting a form signed by their employer.
The paperwork is another potential pain point for both workers and companies, according to Edward Rajaratnam of consultancy EY.
To claim the deduction, Canadians must have a completed T2200, a form where their employer must provide details such as what percentage of their duties they performed from home and whether they were reimbursed for certain expenses.
The issue is that filling out the form can be burdensome exercise for companies that have many remote or hybrid employees with different circumstances and work arrangements, Mr. Rajaratnam said.
It doesn’t help that CRA didn’t clarify key aspects of the new requirements until the beginning of February – a time when companies’ payroll departments are usually already busy preparing tax documents such as T4 slips, he added.
While some companies are pro-actively providing T2200 form to eligible employees, it may be a good idea for Canadians who haven’t received theirs yet to contact their payroll department about filling out the paperwork, Ms. Ricchio said.
“If you believe that you meet the requirements, they should be providing this for you,” she said.
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But unlike with T4 slips, which companies must provide to employees by the end of February, there is no explicit requirement to supply signed T2200 forms by a specific date, she added.
Canadians should also take the time to read the CRA’s instructions about which expenses can be claimed, Ms. Ricchio said. Some of them – such as deducting a portion of heating and electricity costs – are intuitive; others, less so.
For example, Canadians may want to inspect their internet bills, Ms. Ricchio said. While fees paid to access the network are qualifying expenses, any charges related to setting up or leasing a modem are not. Similarly, the cost of sprucing up one’s home office by repainting the walls is an eligible expense, but buying a new ergonomic chair isn’t, she said.
Another possible point of confusion, according to Ms. Ricchio: While tenants working from home can deduct a portion of their monthly rent, homeowners can’t deduct their mortgage or property tax payments.
Taxpayers should also keep not just the T2200 form but a copy of all bills they used in their calculations of expenses as part of their tax records in case the CRA has questions, she said.
Ms. Ricchio worries the nuances will trip up some people who’ve never before attempted this bureaucratic exercise.
“For the first timers, it could be a little bit overwhelming.”
