Nearly four years after the COVID-19 pandemic forced millions of Canadians out of their regular workplaces, a large number still work from home, whether some or all of the time. Many Canadians now have hybrid work arrangements with their employers, dividing time between office and home.
The way employees claim tax deductions for home office expenses recently changed from the way it had been since COVID first upended our regular working arrangements, and so much more.
If you’re one of those employees who still works from home, even some of the time or for part of the year, you can still deduct home office expenses on your 2023 income tax return. However, it’ll take a little more legwork to get it done this time around. Here’s what has changed.
Say farewell to the flat-rate method
In the past three tax years (2020, 2021, and 2022), the Canada Revenue Agency (CRA) has made it easy for people working from home to claim a home office expense tax deduction of up to $500. Through what was called the temporary flat-rate method, employees could claim $2 per day worked from home, no questions asked.
However, that changed just before Christmas 2023, when the CRA issued a press release announcing that the flat-rate method would not apply to the 2023 tax year.
The detailed method is still available
By the end of January 2024, the CRA says it will release a new and simplified form for eligible employees to use when submitting home office expense claims using the detailed method.
As the name suggests, the detailed method requires several things, including that employees determine the exact amount of home office expenses they’re eligible to deduct. This is done by calculating how much of your home qualifies as workspace, expressed as a percentage of the entire home. From there, multiply your total eligible costs by this percentage to determine the amount of your deduction.
Importantly, you’ll also need a completed and signed Form T2200S/Form T2200 from your employer to be able to claim home office expenses using the detailed method. In addition, you’ll need supporting documentation, such as bills and receipts, to show to CRA in case they question your claim.
What you can and can’t deduct
If you’re an employee who works for either a salary or a commission, you can claim a portion of costs related to electricity, heat, and water (or the utilities portion of condominium fees). Other eligible expenses include monthly internet access costs, maintenance and repair costs, and rent for an apartment or house where you live.
Commission employees can also deduct a portion of their expenses for home insurance, property taxes, and lease costs for a cell phone, computer, laptop, tablet, or other electronic device that reasonably relates to earning commission income.
No matter whether they work for salary or commission, employees aren’t eligible to deduct expenses related to mortgage insurance or principal payments, connection fees for internet service, furniture and wall decorations, or for capital costs such as replacement windows or a new furnace.
What if you’re self-employed?
If you run a business out of your home, or regularly use your home as a place to meet clients, patients, and customers, you can claim expenses related to what the CRA calls business-use-of-home. This is different to the deduction method discussed above, which is intended for people whose employer has agreed to let them work from home instead of at an office or other physical workplace.
Business-use-of-home expenses include a portion of costs related to heat, electricity, water, home insurance, mortgage interest, property taxes, and capital costs.