Work From Home Tax Credit: Everything You Need To Know To Save
How’s that saying go again? Nothing Is certain except for death and taxes? Well as it seems Canadians are no exception to this rule, which is probably why you are here reading this. While the COVID Pandemic brought a lot of negatives there were some positives, one of the notable ones being the shift to a work from home culture that hundreds of thousands of businesses have adopted. This cultural shift has inspired change from a policy standpoint, encouraging the government to implement tax credits and breaks tailored to the modern day work from home professional. So if you are a professional working from your home, whether it may be part or full time, keep reading this article to learn about all the opportunities you have at your disposal.
Home Office Expenses Claim
Over the pandemic the government of Canada released a Home Office Expenses for Employees option for those who work from home. This is a 500$ tax deduction for work from home employees. Below are the requirements and how to claim this deduction.
To claim home office expenses, the following criteria must be met:
- Worked from home during 2020, 2021, or 2022 due to the pandemic (if employer provided choice to work from home, CRA will consider individual to have worked from home)
- Worked more than 50% of the time from home for a continuous period of at least four weeks in the year (2020, 2021, 2022)
- Only claiming home office expenses and not any other employment expenses on line 22900
- Employer did not fully reimburse individual for home office expenses (partial reimbursement still allows use of method if eligibility criteria are met)
Flat Rate Method
To claim the deduction for home office expenses, one must take note of the following steps:
Firstly, the total number of days worked from home in the year due to the pandemic must be calculated and multiplied by $2 per day. Any additional days worked at home during the year due to lockdowns can also be claimed.
It is important to keep in mind that the maximum amount that can be claimed is $400 per individual in 2020 and $500 per individual in 2021 and 2022.
The temporary flat rate method, specifically “Option 1 – Temporary flat rate method” on Form T777S, must be used to enter these amounts, which must then be attached to the income tax return for the year.
Afterwards, the deduction can be claimed by entering the amount from line 9939 on Form T777S to line 22900 “Other employment expenses” on the income tax return.
Lastly, a detailed guide on how to claim the deduction through the temporary flat rate method can be found on the government of Canada’s website.
Detailed Method
If your eligible home office expenses exceed $500, you have the option to claim them using the CRA’s ‘detailed method.’ The detailed method enables you to claim various office supplies, phone service plans, work-related long distance phone charges, and a portion of many of your household bills, based on the percentage of space of your home that is used for your office. The CRA website provides guidance on calculating the percentage of your home being used for your home office.
A portion of your household expenses that can be claimed as an office expense includes electricity, heat, water, home internet, maintenance and minor repairs, and rent paid for your home. Commission employees may also claim home insurance, property taxes, and lease of cell phones and laptops that reasonably relate to earning commission income. However, you cannot claim any of these expenses on your tax return if your employer reimbursed you for them.
Note that you cannot claim mortgage interest and principal payments, internet connection fees, furniture, or capital expenses such as new windows, flooring, or a furnace. If you choose to use the detailed method to claim your home office expenses, you will need to obtain Form T2200S or T2200 from your employer and complete Form T777S or T777 in your T1 personal income tax return.
Using the detailed method requires you to track all eligible expenses, retain documentation, and keep original receipts (credit card receipts are not accepted) for three years.
For more information visit the Canada website.
Can I Write Off The Professional Centre Expenses?
As per Helena Swyter, a seasoned CPA at Sweeter CPA, a firm specializing in accounting services for creative professionals, the answer is a resounding “yes” – you can indeed deduct a coworking membership when it comes to your tax obligations. This renders the rent-based approach of coworking spaces financially advantageous in two distinct manners. Firstly, members have the benefit of cost savings by only paying for the duration they actively utilize the coworking space. Secondly, they can subsequently claim deductions during the tax season.
While numerous expenses incurred at a coworking space are eligible for deductions, such as renting conference rooms, printing costs, or networking event fees, it is crucial to note that the IRS explicitly excludes commuting and parking expenses from deductible items. Therefore, the routine commute from your residence to the coworking space, as well as parking fees incurred at the coworking facility, do not qualify as business expenses and cannot be deducted. However, exceptions exist, as is the case with various tax deductions. If you do not regularly rent space at a coworking office, you may be eligible to deduct the commuting costs from your regular or home office.
Navigating tax deductions requires careful consideration and expertise, and it is advisable to consult with a qualified professional to ensure accurate and compliant reporting. With Sweeter CPA’s specialized assistance, you can confidently optimize your coworking-related deductions while adhering to IRS guidelines, ultimately maximizing your fiscal benefits.
At The Professional Centre, we are dedicated to providing our self-employed and entrepreneurial members with the necessary resources for success. Our offerings include top-notch amenities like high-speed WiFi, keyless access, and 24/7 video surveillance, carefully curated to foster comprehensive growth opportunities.
The Professional Centre, situated in Toronto, Ontario, offers the added advantage of allowing members to claim their rental fees as deductible expenses. This strategic move not only reduces your tax liability but also ensures a more favorable financial position.
To note: This is not professional financial or accounting advice. Please consult a registered professional for any of your accounting needs.
Rethinking your organization’s meeting space or workspace? Discover our flexibly designed and fully managed workspace solutions.
