Saving Tax by Working Remotely: Claim Your Home Office Expenses

In response to the pandemic, virtual care became a necessity for healthcare professionals worldwide. Were you among those who provided phone or virtual care to your patients last year? If so, you may be eligible for additional tax savings if you worked from home.

The eligibility for tax savings is dependent on your employment status and can be claimed in two ways:

• If you're an employee: If you worked from home in 2021, you have two options to claim home-office expenses: a simplified method designed in response to the pandemic or the regular detailed method.
• As a self-employed individual, you have always been allowed to deduct home office expenses, which constitutes part of your home maintenance expenses.
• If you have staff members who have been working from home, they are also eligible to use either the simplified or the detailed method.

• If you're an employee:

• If you work in the healthcare industry, the academia or for a ministry of health, or you are a hospitalist or employee, and have been required or have chosen to work from home, you may be eligible to claim employment expenses from your taxable income.

Traditionally, you were required to have a Form T2200, duly completed and signed by your employer. However, because of the pandemic, the Canada Revenue Agency (CRA) has extended the simplified rules for deducting home office expenses until 2022 and has provided a flat-rate deduction.

Simplified method:

This temporary method does not require a Form T2200. If you worked from home for more than 50% of the time for four consecutive weeks, you can claim $2 for each day worked from home, up to $500. You don't need receipts for this method.

Detailed method:

To make a claim based on the actual home office expenses you paid, you require a signed Form T2200 or T2200S, created for the pandemic.

Your employer confirms the terms of your employment, certifying, among other things, that you use a section of your home for work. You must have utilized your home office space for a minimum of four consecutive weeks in 2021.

You must obtain a copy of the T2200 or T2200s from your employer and use Form T777 or T777S (simplified pandemic version) to file your tax return to claim the following:

• - Portion of your electricity, heat, and water bills
• - Office supplies (not equipment)
• - Rent
• - Home internet service
• - Maintenance expenses specifically for your workspace
• You cannot claim mortgage interest, property tax, insurance, or equipment costs as an employee.
• You can determine the pro-rated portion of your expenses by estimating the area of your workspace as a percentage of the total finished area of your home.

For example, if you rented a 1,000-square-foot condo and your home office covers 150 square feet, or 15%, and you pay $30,000 annually for utilities, internet, rent, and more, you can deduct 15% of the expenses, i.e., $4,500, from your employment income. Depending on your tax bracket, this deduction can help you save up to 50%, or $2,250, in taxes.

Annual Costs

Lease

$28,200

Utilities

$1,800

Total:

$30,000

15% of Expenses

$4,500

If you're working out of a common space, such as your dining table, you can only deduct expenses for the time that area was used as a home office. If your dining table is only used for work 50% of the time, you can only deduct 50% of the expenses for that space. Use the CRA's Home Office Expense Calculator to determine your home office expenses.

If you're self-employed (without incorporation)

You can subtract business-use-of-home expenses incurred while generating business income. Use the Form T2125 (Statement of Business or Professional Activities) to record all earnings and costs pertaining to your business or professional activities. The following expenses can be subtracted under the heading of business-use-of-home expenses:

- Heating, electricity

- Insurance

- Maintenance

- Mortgage interest

- Property tax

- Other expenses (which must be specified)

To determine the amount to subtract, total all of your home office expenses and pro-rate them. A reasonable approach is to establish the percentage of the total finished square footage of your residence that is used for business, and then use the same percentage of your overall home office expenses.

If you use a portion of your home for both business and personal uses, determine the amount of time you use the spaces for your business daily, then divide that amount by 24 hours to determine the proportion of the household expenses in question.

Keep in mind that, unlike an employee, you can subtract the business portion of your mortgage interest, property tax, and insurance.

If you're incorporated

If you're incorporated, you have two options:

- The business may pay you rent to employ your space, and the company subtracts the rent as part of its operating costs. This rent would be taxable income personally if you are personally charging rent to the corporation. However, you can then subtract rental expenses to mitigate rental income.

- If you pay yourself a salary, you may subtract your home office expenses as a worker on your individual tax return using Form T777 (Statement of Employment Expenses) or T777S (the simplified pandemic version), if you satisfy the eligibility criteria.

It's probably better to charge rent to the corporation because the company can subtract more expenses (e.g., property taxes, insurance, and so on). Compared to deducting home office expenses as an employee, there are also fewer eligibility constraints.

If you have employees who worked remotely:

For workers who worked from home, they can select either the simplified or the detailed method. If one of your employees selects the detailed method, you'll need to give them a Form T2200 or T2200S so that they can subtract their employment expenses.

Track Your Expenses

Please note that the flat rate method for workers is a temporary measure that has been extended through 2022. Keep track of your expenses incurred while working remotely this year in case the CRA asks for them.

To seek reimbursement for these expenses, it would be prudent to seek assistance from your accountant. In case you have any inquiries regarding fiscal strategies, it is best to get in touch with your MD Advisor. The term MD Advisor pertains to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

It is important to note that the information mentioned herein should not be interpreted as granting specific advice on topics such as finances, investments, foreign or domestic taxation, legal matters, accounting or any other similar professional advice. This information does not intend to take the place of advice provided by autonomous tax, accounting or legal professionals."