If you are incurring remote working expenses during the pandemic, you may be able to claim those expenses to reduce your tax payable under the Canada Income Tax Act.
Generally, employees with remote working expenses are paid either an allowance or they are reimbursed by their employer (including an “accountable advance”).
If you are paid an “allowance” for your home office expenses, the allowance should be deductible to you generally. If not, it would be a “taxable benefit” to you and not be deductible.
If you pay for your home office expenses initially, but your employer reimburses you afterwards, those expenses should be deductible generally, too.
In either case, you may be able to “deduct” your remote working expenses during the pandemic against your taxable income and, as a result, pay less tax.
If you receive either an allowance or a reimbursement, which the Canada Revenue Agency deems a “taxable benefit” to you, your employer could also “gross up” your benefit by paying the additional tax payable by you – this is also a taxable benefit.
If you have remote working (i.e., home office) expenses while working remotely during the pandemic, here are some tips that you should consider, including speaking to your tax advisor for assistance and advice when you file your (now deferred) personal income tax form:
REIMBURSEMENTS BY YOUR EMLOYER FOR REMOTE WORKING EXPENSES:
- you will need to give your employer your organized receipts (information) about your remote working expenses
- your employer can reimburse you for those that are reasonable and related to you performing your employment duties
- if an expense is a mix of both business and personal, your employer will likely have to report your reimbursement and you will likely be taxed on and for the personal component as a taxable benefit
- if it is difficult to allocate the expense between business and personal, the CRA expects that a reasonable position will be taken by you and your employer
- some mixed-use expenses cannot be tracked and documented accurately by actual receipts (i.e., mobile phone usage and/or data usage, unless used solely for business and, if so, your employer is unlikely to be able to reimburse you and, if it does, it is likely this expense may be deemed a taxable benefit to you
- if your employer reimburses you for a “capital expense”, such as a new computer, printer, other hardware, or fixing up your home to accommodate you working remotely, you will be deemed to have received a taxable benefit, taxable to you, directly, but your employer is likely able to deduct the expense in full as a business expense, unless the CRA deems it unreasonable in the circumstances
- using a reimbursement, rather than an allowance, is likely preferable if you have one-time or irregular remote working expenses that you experience during the pandemic
MONTHLY ALLOWANCE FOR HOME OFFICE EXPENSES:
- if you receive a flat-rate allowance for your home office expenses, it will likely be a taxable benefit and, therefore, will be added to your income for tax purposes
- if, for example, you earn an annual salary of $50,000, plus a remote office allowance of $50 monthly, the allowance would be added to your income, being $50,600
- of the $50 monthly allowance, after you pay tax on it, you put in your pocket that amount, less your marginal tax rate on that amount, a net benefit to you (i.e., your “after-tax” allowance)
- your employer should be able to deduct your allowance in full, as a business expense, unless the amount is deemed by the CRA to be unreasonable in the circumstances
DEDUCTING YOUR REMOTE WORKING EXPENSES:
To be able to deduct any of your remote working expenses against your taxable, employment income:
[1] your employment contract must require that you pay for the expenses at issue;
[2] your employer must sign a T2200 form, certifying the conditions required for your deductibility are met; and
[3] the expenses you claim for deduction must not have been reimbursed to you by the employer.
- you may be able to deduct some of your remote working expenses against your taxable income on a reasonable basis
- to deduct home office expenses: [a] your home office must be in the place where you principally perform your employment duties; and [b] your home office must be used exclusively during the period for which the expense relates (to earn income);
- examples: office supplies (stationary, toner, ink, cartridges, postage, etc.), some use of your mobile ‘phone expense, some use of your monthly Internet usage (i.e., data usage) and at least a portion of the expenses related to your remote working space at home (such as rent, electricity, maintenance, heating, etc., for only for your designated remote working area or space)
- you can only deduct the amount directly related to the performance of your duties of employ (a limitation on your deductibility)
- effectively, to be deductible, your expense must be a supply you use or consume directly for the purpose of earning your employment income (on a reasonable basis), rather than a fixed cost that is not consumed by you during and for your employ
- example: you cannot deduct hard-cost equipment that you do not consume directly to earn your income, such as computers, peripherals, etc.
- if you earn an annual salary, you cannot deduct the expense of your mortgage, property taxes, etc. for the home you own and remotely work within
- if you earn commission income only, you may be able to deduct a portion of your home expenses, including property taxes, home insurance, but not your mortgage payments
Note that if you are paid an allowance for your remote working expenses, which is included in your income as a taxable benefit, you potentially could still deduct those expenses if you incurred them to perform your duties of employ, provided the conditions above are satisfied.
