Home office expenses: Work remotely and save on taxes

May 7, 2020

Are you providing virtual care to your patients during the pandemic? Do you have staff who are also working remotely?

Physical distancing and virtual care may be necessary now, but this could also be an opportunity for physicians to try a new way of working that could pay off in the future. Working remotely could cut down on office space and attract a larger workforce if they’re not restricted by hours and location.

From a tax perspective, you can potentially save on taxes if you work from home. The Canada Revenue Agency (CRA) has yet to clarify specific rules with respect to the current pandemic situation.

Generally, your employment status will determine what you can deduct.

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’ve been required to work from home,1 you may be able to deduct employment expenses from your taxable income.

Your employer will need to validate 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 at least 50% of the time throughout the year. It’s not clear if the CRA will relax this standard, for example, if you work remotely 100% of the time for four months of the year but report to an employer’s place of work the remainder of the time.

If you are eligible, your employer will need to fill out Form T2200 (Declaration of Conditions of Employment) to certify this, and provide you with a copy.

On your tax return, you will be able to claim employment expenses using Form T777 (Statement of Employment Expenses). 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
  • office supplies (not equipment)
  • rent

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% — or $2,250 — in taxes. 

 

Annual expenses

Rent

$28,200

Utilities

$1,800

Total

$30,000

15% of expenses

$4,500

Note: If you have employees who are working from home, you will need to provide them with Form T2200 so they can deduct their employment expenses.

You’re self-employed (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 2125 (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
  • insurance
  • maintenance
  • mortgage interest
  • property taxes
  • other expenses (you need to specify)

To calculate how much to deduct, add up all your home office expenses and pro-rate them. Using the proportion of the square footage that you use for business is reasonable.

Note that unlike an employee, you can deduct the business portion of your mortgage interest, property tax and insurance.

You’re incorporated

If you’re incorporated, you can do one of two things:

  1. The corporation can pay you rent for using your space, and the corporation deducts the rent as part of its overhead expenses.2
  2. If you pay yourself a salary, you can deduct your home office expenses on your personal tax return using Form T777 (Statement of Employment Expenses) if you meet the eligibility requirements.

It is probably better to charge rent to the corporation since the business itself could deduct more expenses (i.e., property taxes, insurance, etc.). There are also fewer restrictions on eligibility compared to deducting home office expenses as an employee.

Keep track of your expenses

It’s possible the CRA will introduce new rules, or clarify current ones, about what’s deductible during COVID-19, particularly around the requirement that you work more than 50% of the time from home. Be sure to keep track of any expenses that you incur while working remotely this year as we wait for clarification so you can claim them at tax time.

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.

1  In general, you must be required to work from home under your employment contract. While COVID-19 has compelled many businesses to close their offices, the CRA has yet to state definitively whether this meets the condition of employers requiring their employees to work from home.

2 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.  

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.

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