COVID-19 pandemic “stay at home orders” forced many companies have their employees work from home. Those working from home may want to claim a deduction on their personal income tax return for home office expenses incurred. To deduct employment expenses from their income, including home office expenses, employees must be required to work from home and to bear the expenses. Under such circumstances, employers are advised to issue Form T2200 “Declaration of Conditions of Employment.” Simply permitting employees to work from home may not meet the eligibility criteria and employers should not issue T2200 until the CRA issues administrative relief or other guidance.
Employees can deduct expenses for the employment use of a workspace at home, if the expenses are incurred to earn employment income. Additional costs that are deductible include the pro-rated share of cost of electricity, A/C, minor repairs for office space. Mortgage interest, property taxes, home insurance, and depreciation are not deductible. Employees should retain and have readily available support of the claims being made.
Not every home is properly equipped as a home office. When employees transition to working remotely, companies may consider providing an allowance to the employees to purchase necessary office supplies. Instead of a cash allowance, companies may also choose to reimburse employees for the cost of purchasing office equipment, such as monitors, desk, and office chair, printer, supplies, etc. The tax treatment of such cash allowance or reimbursement is generally taxable. Under the current CRA legislation, regular employees are not allowed to deduct the cost of purchasing or leasing office equipment. Hence, allowance or reimbursement received by an employee for this purpose is considered a taxable benefit and is required to be included in income in the year of receipt.
Employers should consider providing a cash allowance or reimbursement to employees for equipment or consider leasing. While employees are working from home, there should be no taxable benefit to the employees as the employer is the primary benefactor. Any personal use may be considered incidental to business purposes and not considered taxable. If the employer is purchasing the equipment for employees, if the employees are allowed to keep the equipment after they are no longer required to work from home, the employer would not be considered the primary benefactor and the value of personal use of such equipment would be considered taxable.
When the benefit is considered taxable to employees, the employer should consider whether the company will bear the additional tax cost on the benefit. Or, whether the employee will be responsible for the tax. If the employer is bearing the tax cost, a tax gross up is required. In either case, this should be clearly communicated to employees to avoid surprises later.