Working from Home: Income tax issues.

AuthorDevaney, Joseph

During the COVID-19 pandemic, many employees transitioned to working from home. During the crisis, few were considering the income tax implications. As life returns to whatever the "new normal" is, we can be confident taxes will still exist. So what are the tax implications of a workspace in the home?

Deducting home office expenses

In general, the expenses employees can deduct are very limited. The COVID-19 pandemic has opened up new questions in respect of working from home. The tax community has been pushing for guidance in time for the next tax filing season. However there has been little commentary from the Canada Revenue Agency (CRA) to date, which is understandable given the other priorities during the crisis.

When are expenses deductible?

In order for home office expenses to be deductible against employment income, the employee's contract must require them to incur such expenses. While the COVID-19 pandemic has required many to work from home, was this required under their contract of employment? The CRA has not commented on this issue to date. They will hopefully acknowledge that, when the only option for working at all was working from home, such a requirement was implicit and does not require revising existing employment contracts. Note that if the employee had the choice of working from home or at the regular workplace, they would not meet this requirement.

Any claim for workspace in home costs must meet one of the following tests:

  1. The home is where the employee principally (more than 50% of the time) does their work; or

  2. The employee uses the space exclusively to earn employment income, and on a regular and ongoing basis for meeting clients, customers or other people in the course of performing employment duties.

While working from home during the COVID-19 pandemic, it seems likely that many more workers will meet the requirement under (i) than in previous years. However, it is uncertain whether the workspace must be the main place of work in context of the entire year, or whether meeting this test for a period during the year (such as the weeks or months dictated by preventative COVID-19 measures) is sufficient. While the CRA has not yet commented, hopefully they will provide a reasonable interpretation for this unusual situation before we need to file tax returns.

If working from home for only part of the year means qualifying under provision (ii), the requirement for regular and ongoing meetings becomes more problematic...

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