It probably feels like the COVID-19 pandemic has impacted nearly every aspect of life, including your taxes. But when it comes to your tax return, Canadians who worked from home for the majority of 2021 might enjoy a bit of a break on their taxes once again this year.
If you’re one of the many Canadians who suddenly found yourself setting up shop in your basement or at the kitchen table because of the pandemic, you may be eligible for another tax deduction this year. This year, the Canada Revenue Agency (CRA) has extended the work-from-home expense deduction that came into effect in 2020 to help “simplify claiming the deduction for home office expenses,” according to the Government of Canada website.
And this year's work-from-home expense deduction is looking even better than last year, because the CRA has increased the credit limit for the 2021 tax year. Tannis Dawson, Vice President of High Net Worth Planning at TD Wealth, explains what's changed and what working from home could mean for your tax return.
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New way to claim work-from-home expenses
"If you worked remotely for at least 50% of 2021 due to the pandemic, then you're most likely eligible to take advantage of the tax break that was designed specifically for Canadians who had to convert part of their home to their office due to the pandemic," said Dawson.
"Many Canadians – and employers – anticipated that we would be returning to the office in 2021. That obviously didn't happen for many people, so the CRA further simplified the process for Canadians to submit their work-from-home expenses and even increased the maximum return amount."
Who's eligible and what can you claim?
"If you spent at least 50% of your work hours in 2021 working remotely for a minimum of four consecutive weeks, you can now claim up to a maximum of $500 on your taxes (up from $400 last year). This is a deduction against your income, not a benefit, so it reduces your overall income for the year," said Dawson.
Claiming expenses is designed to be simple when you use the new T777S form. A flat fee of $2 per day for every day you worked from home in 2021 is paid in the form of a tax credit, and both full-time and part-time workers are eligible to use it.
Each person in your household who is working from home due to COVID-19 who qualifies can apply for this deduction, and no receipts for expenses are required.
Have a lot of expenses to claim? There's another option
Canadians who worked from home due to COVID-19 for more than 50% of 2021, or those with more extensive home office expenses, can opt to explore a second option offered by the CRA which requires more information about your claims and expenses.
"If you have a lot of work-from-home expenses or worked from home more than 200 days in 2021, you have the option to also complete the more detailed T2200S [Declaration of Conditions of Employment for Working at Home Due to COVID-19] form, which is a shorter version of the T2200 [Declaration of Conditions of Employment] that was first introduced in 2020. Part of this form includes a declaration from your employer, which you'll need to give to them to sign and complete," said Dawson.
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With this more detailed method, Canadians may claim eligible expenses such as their rent, electricity, utilities, home internet access fees, basic cellphone service plan fees, and office supplies.
Non-eligible expenses include principal mortgage payments, electronics (e.g. laptops, smart speakers, cellphones) and computer accessories (e.g. computer mouse, monitor, headset, webcam). For a full list of eligible and non-eligible items, visit the CRA website.
"Anyone who worked from home for more than 200 days in 2021 might want to consider the more detailed method," said Dawson.
Here's a scenario that might help you decide which option is best for you.
If your home office space is at least 10% of your house's square footage, your rent is $2K per month, and you've been working from home due to COVID-19 since January 2021, then your eligible expenses would likely be well over the allotted $500 flat-fee deduction option.
"Anyone who rented last year and worked from home due to COVID-19 or is in a similar scenario should definitely consider the second, more detailed option," said Dawson.
Questions?
For more information on tax filing, visit the Canada Revenue Agency website or speak to a tax professional.
Want to connect with a TD Wealth advisor to discuss how you can implement tax-efficient strategies? Visit the TD Wealth website.
The information contained herein has been provided by TD Wealth and is for information purposes only. The information has been drawn from sources believed to be reliable. The information does not provide financial, legal, tax or investment advice. Particular investment, tax, or trading strategies should be evaluated relative to each individual's objectives and risk tolerance.