Personal tax changes for 2020 related to COVID-19

TAXATION

The past year brought changes and challenges for Canadians. Many suffered job losses due to the pandemic, and they may have received federal government support payments; others found themselves working from home for all or part of the year; others may have changed how they commuted to work so that they could minimize their exposure to the virus. Any of these scenarios has implications for your 2020 personal tax return.

Home office expenses deductions for employees

Before 2020, employees could deduct home office expenses if their home office was the “place where the individual principally performs the duties of employment,” which was interpreted to mean more than 50% of the time, or if the space was used exclusively to earn employment income and was “used on a regular and continuous basis” for meeting customers or clients. Their employer would have to complete Form T2200, Declaration of Conditions of Employment. This document certifies both of the following:

• the approximate percentage of the employee’s duties performed at a home office
• whether they were reimbursed for any home office expenses

The COVID-19 pandemic required many more employees to be working from home on at least a temporary basis. In response, the government introduced several changes for 2020 to simplify the process for claiming home office expenses for both employees and employers.

If you worked from home at least 50% of the time over a period of at least four consecutive weeks in 2020 due to COVID-19, you are now eligible to claim home office expenses for 2020. Previously, the determination of whether the employee worked principally out of the home office was generally calculated over the full year. This shorter qualifying period will ensure that more employees can claim the deduction.

Two calculation methods available

A temporary flat rate method is available only in 2020 and is calculated at $2 per day worked at home (part-time or full-time), to a maximum of $400 for the year. If you use this simplified method, the employer does not need to certify the conditions of your employment on the T2200 form. This deduction can be claimed for multiple individuals in the same household if the other criteria are met. If you use the simplified method, you cannot claim any other employment expenses such as car expenses.

Alternatively, you can use the detailed method if your employer certifies the conditions of employment using Form T2200 (the original version) or T2200S (a streamlined version for those working at home due to COVID-19). You could then deduct a reasonable portion of eligible expenses that are not reimbursed by your employer. Eligible expenses for all employees include electricity, heat, water, the utilities portion of condominium fees, home internet access fees, maintenance and minor repair costs, and rent paid for the house or apartment where you live. Commissioned employees can also claim home insurance, property taxes and the lease of a cellphone, computer, tablet etc. that could reasonably relate to earning commission income.

To calculate the reasonable portion that you can deduct, you must determine the size of your workspace and divide that by the total square footage of all finished areas in your home. If the workspace has other purposes besides work, you must also prorate the expenses by the number of hours the space was used for business in a week divided by the total number of hours in the week.

The Canada Revenue Agency (CRA) has created a calculator to help employees determine their home office expenses deduction. If you are using the detailed method, the T2200 or T2200S form does not have to be filed with your tax return, but you must keep it for your records.

Other changes for employees

The CRA has also announced additional flexibility in applying rules for determining taxable benefits for employees. An employee will not be considered to have received a taxable benefit if their employer reimburses them for up to $500, supported by receipts, for computer or office equipment to enable the employee to work from home.

The CRA’s longstanding position has been that travel from your home to, and parking at, an employer’s place of business is normally considered to be a personal expense, and therefore any reimbursement by the employer would be a taxable benefit to you. However, the CRA announced that where an employee incurred commuting expenses over and above their usual commuting costs as a result of the pandemic, they will not consider it a taxable benefit if the employer reimburses or makes reasonable allowance for these expenses. This would also apply where an employee is working from home and commuted to their employer’s place of business to pick up computer or office equipment.

COVID-19 support payments to individuals

Many of the federal government’s support payments for individuals during the COVID-19 must be reported as taxable income on your 2020 personal tax return. These include the:

• Canada Emergency Response Benefit (CERB)
• Canada Emergency Student Benefit
• Canada Recovery Benefit
• Canada Recovery Caregiving Benefit
• Canada Recovery Sickness Benefit

There was some confusion about whether some self-employed individuals actually qualified for the CERB, and especially whether the $5,000 required minimum income in the 12 months before the date of application was based on gross income or net income. Any of the above payments received in 2020 must be included in taxable income in that year. If someone is later found not to be eligible to receive the CERB, they can take a deduction in the year in which they repay the funds.

The federal government announced on February 9, 2021 that self-employed individuals who applied for the CERB and would have qualified based on their gross self-employment income (instead of net self-employment
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income) in the prior year will not be required to repay the benefit, provided they also met all other eligibility requirements. The CRA and Service Canada will return any amounts to self-employed individuals who may have already voluntarily repaid the CERB to the government.

To see how these changes affect you, it may be useful to meet with your Chartered Professional Accountant (CPA).