Did you provide virtual care to your patients last year because of the pandemic? Generally, your employment status will determine what expenses you can deduct and how you go about it.
- If you’re an employee: If you worked from home in 2020, you may be able to deduct home office expenses using one of two methods. One of these is a simplified method created in response to the pandemic.
- If you’re self-employed: Anyone who is self-employed and uses their home as their place of business has always been allowed to deduct home office expenses, as a portion of their home maintenance expenses. This deduction is not new for 2020.
If you’re an employee
If you work in a community health clinic, a health service organization, academia, a ministry of health, as a hospitalist, etc. and you have been required or have the choice to work from home, you may be able to deduct employment expenses from your taxable income.
Historically, you would have needed a Form T2200, completed and signed by your employer. For 2020, because of the number of Canadians required to work from home due to COVID-19, the Canada Revenue Agency (CRA) has made some simplifications.
This temporary simplified method does not require a Form T2200 from your employer. Employees who worked from home more than 50% of the time over at least four consecutive weeks can deduct $2 per day for each day worked from home (not limited to the four-week period), up to a maximum of $400. You do not need to provide receipts for expenses incurred.
If you want to make a claim based on the actual home office expenses you paid, you will need a signed Form T2200 — or T2200S, a simplified version created for the pandemic.
Using one of these forms, your employer validates the terms of your employment, confirming among other things that you use a portion of your home for work. Generally, this means that you need to use your home office space more than 50% of the time for at least four consecutive weeks in 2020.
If you are eligible, you’ll need your employer to fill out Form T2200 (Declaration of Conditions of Employment) or T2200S and provide you with a copy.
See the section Calculation of work-space-in-the-home expenses for details on what expenses to include, such as a portion of your:
- electricity, heat and water bills
- office supplies (not equipment)
- home internet service (new for the 2020 tax year)
Maintenance expenses can also be deducted, but only if they were solely for your workspace. For example, if you painted your entire house, you can’t deduct any of that. But if you just painted your workspace, you can deduct all or most of that.
Note that as an employee, you can deduct rent, but you cannot deduct mortgage interest, property tax, insurance or any capital costs (i.e., equipment).
A common way to determine the pro-rated portion of your expenses is to estimate the area of your workspace as a percentage of the total finished area of your home.
Let’s say you’re renting a 1,000-square-foot condo and your home office takes up 150 square feet, or 15%. Your annual expenses, including rent, are $30,000. Since your home office is 15% of the total space, you can deduct 15% of the expenses — or $4,500 — from your employment income. Depending on your tax bracket, this could save you up to 50% of that amount — or $2,250 — in taxes.
15% of expenses
When you don’t have a dedicated workspace — for example, if you work on your dining room table —you can only deduct expenses for the time used as home office. If you only use the dining room table 50% of the time as your home office, then you can only deduct 50% of the expenses for the space.
Note: Do you have staff who worked remotely? If you have employees who worked from home and want to use the detailed method, you’ll need to provide them with Form T2200 or T2200S so they can deduct their employment expenses.
If you’re self-employed (but unincorporated)
If you’re self-employed, you can deduct business-use-of-home expenses to the extent that they’ve been incurred to earn business income.
You would use Form T2125 (Statement of Business or Professional Activities) to report all revenues and expenses related to your professional activities. You can deduct a portion of the following under business-use-of-home expenses:
- heat, electricity
- mortgage interest
- property tax
- other expenses (you need to specify)
To calculate how much to deduct, add up all your home office expenses and pro-rate them. A reasonable method is to figure out the proportion of the total finished square footage of your home that you use for business and use that same proportion of your total home office expenses.
Note that unlike an employee, you can deduct the business portion of your mortgage interest, property tax and insurance.
If you’re incorporated
If you’re incorporated, you can do one of two things:
- The corporation can pay you rent for using your space, and the corporation deducts the rent as part of its overhead expenses. If you are personally charging rent to the company, this would be taxable income to you personally. However, you would then be able to deduct rental expenses to offset the rental income.
- If you pay yourself a salary, you can deduct your home office expenses as an employee on your personal tax return using Form T777 (Statement of Employment Expenses) or T777S (the simplified pandemic version) if you meet the eligibility requirements.
It is probably better to charge rent to the corporation since the business itself could deduct more expenses (e.g., property taxes, insurance, etc.). There are also fewer restrictions on eligibility compared with deducting home office expenses as an employee.
Keep track of your expenses
Please note that the flat rate method for employees is a temporary measure that may or may not be extended for 2021. Be sure to keep track of any expenses that you incur while working remotely this year in case the CRA wants to see them.
Your accountant can help you claim these expenses. If you have any questions about financial planning, contact your MD Advisor*.
*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.
The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.