Has the COVID-19 pandemic meant you are now slaving away at home, dreaming of ways you can write off some of your home expenses on your 2020 taxes?
Well, we've got some good news... at least for some of you.
If you’re a salaried employee who has been told to work from home, it might not benefit you that much, cautions Anastasi Gazarek, a CPA and CA, and founder of Eversavvy Financial CPA Corp.
But, if you’re self-employed – whether working for yourself because you lost your job, starting a side hustle to rustle up some extra cash, or an entrepreneur by choice – you might be able to wring some extra value out of your home.
So start saving those receipts if you're not already, and make sure to track your all your work and expenses (being frantic at tax time next year shouldn't be anyone's side hustle). Doing this could come in handy, especially if the Canada Revenue Agency (CRA) changes any of its current rules because of the pandemic.
As a sole proprietor, you can write off the home-office portion of heat, electricity, water, maintenance, property tax, home insurance, and, most significantly, your mortgage interest or your rent.
“The space you are using for your home office has to be where you are mainly doing your duties,” says Gazarek. In other words, you can’t write off the heating on half your home if you’ve just swept aside some leftover cereal and made room for your laptop on the kitchen table.
The space has to be exclusively used for your business and used regularly to meet clients.
For instance, if your home is 1,000 square feet and the space you are using exclusively as your home office is 100 square feet, you would claim 10% of the hydro and other items. If you are using the space only, say, 60% of the time for your work, you can now only claim 6% of the hydro and other items. An example of this might be using a bedroom during the day for work.
Gazarek cautions that your home-office expenses can’t be more than your income from self-employment. But you can carry forward costs if you get below your income, for as long as you are self-employed.
If you have an incorporated business, you can bill your rent to your corporation, extracting the money tax-free from your company.
You Have a Side Hustle
This is the same, as far as home-office claims are concerned, as being solely self-employed.
But you can’t double-dip and claim an expense as a sole proprietor if your employer is also reimbursing you for items, Gazarek says. And it has to be reasonable, she adds. You can’t claim for expenses if you are only doing a few hours of work a year.
If you are a salaried employee who has been told to work from home, “It’s not as glorious as what you think you can claim,” says Gazarek. For home owners, Gazarek estimates it to be about a few hundred dollars a year.
And before claiming anything, you need to ask your employer to fill out a T2200 form, which tells the CRA that they are requiring you to work from home and they will not reimburse you for your work-related expenses… otherwise you can’t write off anything to do with your home.
If your employer has done that, you can claim things like hydro, gas, light maintenance and cleaning materials, but not Internet, and only for the portion of your home you’re using as a home office.
And the space needs to be where you are principally doing your work, or meeting clients or other people in the course of your work duties.
Current CRA rules aren’t set up for this pandemic scenario. For instance, work-from-home rules are currently calculated on an annual basis, so that might mean requiring you to work from home for six months out of a year, as opposed to the few months of the lockdown. And “meeting people” doesn’t include virtual meetings, if you go by the CRA’s previous rulings.
But because this is an unusual circumstance, some tax experts are waiting to see whether the CRA ends up loosening the rules due to the pandemic. So keep those receipts.
If you are a homeowner, you can’t claim mortgage or capital costs or home insurance if you’re an employee.
If you are a renter, you can claim the office portion of your rent and the maintenance costs of your office space.
It’s slightly different if you are a commissioned salesperson, when you can write off a portion of the property tax and home insurance, but not your mortgage interest, which, for most people, is their largest expense.
Track your expenses
Keep track of your expenses, even if they may not count under current rules.
COVID-19 has upended a lot of things. And it may just end up altering the CRAs rules on how you can use your home to cut yourself a tax break, too.