COVID-19 has forced a growing number of Londoners to transition into remote work, raising questions about how this will affect tax time. It’s a confusing time, especially when not all the definitions have been fully explained. Here’s how remote work could impact your tax filings for 2020, a truly unprecedented year!
Working From Home
Back in March, many Canadians suddenly found themselves making space at home for work. As a result, they may deduct expenses related to their home office if their contract of employment requires them to pay for expenses that are not reimbursable by the employer. The Canada Revenue Agency says that there are two conditions, and an employee must meet one of them claim home office expenses:
- They work from home “principally” (more than 50% of the time) to “perform duties of employment or exclusively to earn employment income and on a regular and continuous basis for meeting people as part of employment duties.” In the past, the CRA has used the calendar year to determine if an employee used a space principally, which would mean six months out of the year.
- You use your home office to earn income regularly through meetings with clients. The formal definition is face-to-face meetings. As of right now, this does not include virtual meetings and conference calls performed with clients through programs like Microsoft Teams, Zoom, or Skype.
Employees can claim only expenses allocated to home office space on a reasonable basis as deductions against their employment income. Usually, the size of the office is how an employee can determine the percentage of their bills to claim.
As far as equipment used to work remotely, the CRA will not give an employee a taxable benefit if the employer pays or reimburses up to $500 for a computer or other home office equipment (chairs, desks, etc.) that let the employee carry out their duties. If the employer pays or reimburses over $500, they must include the excess in the employee’s income as a taxable benefit. This is unless the employer keeps ownership of the equipment; otherwise, the employee should keep receipts that they’ve provided to their employer.
What Must Employers Consider?
Employers have to consider the environment in which their employees are working remotely, and whether it’s a permanent establishment (PE), also called a fixed place of business. A Canadian-resident corporation is subject to the PE there. The taxable income is allocated to each PE so that two or more provinces or territories don’t end up taxing the same income.
Precedent shows that the CRA and courts see an employee’s home office as not a PE or fixed placed of business of the employer, so a work-from-home scenario shouldn’t change your relationship. Given how COVID changed our work patterns, it’s unlikely that members of your team went from working at your location to a home office setting in another province.
Even if every employee stays in the region, it can be a confusing time; employers can ease this burden by clarifying their work-from-home policies for employees in writing. These policies can specify the requirements in writing, advises employees that expenses should only be incurred that relate to earning employment income, and includes terms and conditions such as defining the home workspace as the location from where an employee mainly works. They should also outline that it is the employees’ responsibility to retain the support and documentation of tax claims they will make.
For employees still working from home as a result of the COVID-19 pandemic or spent half of the last year working in a home office, it’s important to get in writing from your employer the requirements and any expenses for which they required you to pay without reimbursement.