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With more employees working from home this year, the Canada Revenue Agency (CRA) has simplified the process for claiming home office expenses (aka work-space-in-the-home expenses) on your tax return.
Given that you incur costs when you use your home as your office base, work from home deductions can help to recoup these expenses to an extent.
New CRA guidelines have also decreased the administrative burden faced by employers whose employees worked from home in the 2020 tax year.
Read on to learn about the home office tax deductions you can claim as well as the tax deductions available to self-employed individuals and small businesses.
Related: TurboTax Canada Review.
Home Office Expenses and Deductions in Canada
Typically, in order to write off home office expenses on your income tax return as an employee, you are required to obtain a T2200 form from your employer.
The form tells CRA that your employer required you to work from home and you were not reimbursed for expenses incurred.
It also indicates that you used your home office for more than 50% of your employment duties or you used the space only for work to meet clients on a regular and continuous basis.
The CRA recently updated the requirements to make it easier for Canadians to deduct home office expenses without meeting all the eligibility criteria (e.g. social distancing means you are likely not meeting clients at your home).
A “new temporary flat rate method” means you can be eligible for home office expenses deductions if you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to COVID-19.
Using the simplified method, you can claim $2 for each day you worked at home, up to a maximum of $400. To claim the maximum amount, you must have worked from home for 200 days in 2020.
Under the new rules, you also won’t need to obtain and submit a T2200 form or provide supporting documents (e.g. receipts).
Employees who incurred significant expenses from working from home can choose to proceed with the regular “detailed” claim for actual amounts spent.
In this case, you will need to provide a completed and signed T2200 or T2200S form from your employer and can claim a percentage of your home expenses (based on size of your workspace), and purchases such as:
- Envelopes and folders
- Highlighters, pens, or pencils
- Ink cartridges
- Paper and binder clips
- Printer paper and toner
Office supplies are claimed using Form T777 or T777S.
You can estimate your home office expenses using this calculator.
Related: CERB is Taxable – What You Need To Know.
Self-Employed Tax Deductions in Canada
If you are self-employed or operate a small business, there are various expenses you can deduct to lower your taxable income.
The deductions that often fly under the radar include:
1. Business Use-Of-Home Expenses: You can deduct a portion of your home expenses including utilities, home insurance, telephone, rent, mortgage interest, and property taxes.
For example, if your home office space is 400 square feet and your entire home is 2,000 square feet, 20% of eligible expenses may be deducted for business-use-of-home expenses.
Note that the workspace should be where you normally do business or you should only use it to earn business income and for meeting clients.
2. Meal and Entertainment: Need to entertain clients? 50% of the amount spent on food and drinks is tax-deductible with some exceptions. The cost of meals provided to staff at company parties or events can be deducted 100% for up to 6 times a year.
3. Professional Fees: These include fees you pay to professionals as part of running your business. Examples include lawyers and accountants as well as fees for membership in professional associations.
4. Vehicle Expenses: You can deduct the costs incurred when you use your personal vehicle for business purposes. You will need to keep a log of your business-related mileage and can write off the portion of expenses related to business use.
Vehicle expenses you can claim include fuel, insurance, repairs and maintenance, parking, license and registration costs, and lease payments.
5. Charitable Donations: You can claim charitable donations and gifts up to 75% of your net income.
6. Advertising: The cost of advertisements on televisions, radio, online media and in newsprint can be deducted subject to certain conditions.
7. Interest and Bank Charges: Those pesky fees you pay on bank loans are generally deductible. The same goes for bank charges and service fees.
8. Business Insurance: Good insurance coverage can save your business in the event of unforeseen problems. You can write-off the premiums you pay for business insurance including general liability, business property and business interruption insurance.
More common expenses you can deduct when filing your small business return include:
- Office supplies
- Bad debt
- Tax depreciation on capital assets
- Employee benefits e.g. CPP and EI
- Business start-up costs
How To File Your 2020 Tax Return
Whether you are filing as an individual or sole proprietor, a good tax preparation service can help you simply the process.
TurboTax offers a do-it-yourself online tax software that easily handles individual, student, family, and self-employed returns. The fee for this service ranges from free to $44.99 per return and you can save 15% here.
TurboTax Online guarantees you will get the maximum refund possible and your return calculations will be 100% accurate.
If you want access to an expert that provides unlimited tax advice while you complete your return, the TurboTax Live Assist & Review service is a great option. When your return is completed, the tax expert also reviews it before submission.
Lastly, you can simply have someone else do all the work. TurboTax Live Full Service offers a 100% hands-off approach to completing your regular or self-employment tax return.
The TurboTax expert prepares, optimizes, reviews and files your return on your behalf, after you sign off on it.
Learn more about TurboTax Live here.