Home Office Expenses for Employees
Employees who work from home might be eligible to claim home office expenses.
This claim is contingent on a few very specific conditions set out by the CRA.
To help you, we've built a home office expense calculator that you can download below.
And if you'd rather have Joe walk you through it, check out the video version below.
Eligibility and Required Documentation
There are two main ways to be eligible for home office expense claims as an employee.
Method 1 - More than 50% for More Than 4 Weeks
The first way is if you have worked from home more than 50% of the time for at least four consecutive weeks.
That’s pretty straightforward and easy enough to figure out with a bit of time tracking.
Method 2 - Space is Exclusively Used for Work AND regularly meeting clients
The second way to be eligible is if your home office is EXCLUSIVELY used for work AND regularly for meeting clients.
“Used exclusively for work” means that your home office space must be used solely for conducting business or work-related activities.
For example, a spare bedroom set up as an office qualifies if you use it ONLY for work.
If that room doubles as a guest bedroom or a personal space for non-work activities, it may not meet the CRA's criteria for exclusive business use.
The other piece here is that it must be “Regularly used for Meeting Clients.”
The area should be one where you conduct face-to-face meetings, video conferences, or client calls on a regular basis.
The key here is the regularity and formality of the space for client interactions, which helps establish it as a genuine part of your business operations.
Documentation Required
There is also some extra documentation needed to be able to properly claim home office expenses as an employee.
You’ll need to grab a copy of a special form from your employer. This form is called the “T2200 - Declaration of Conditions of Employment” …sounds super fun, right?
This T2200 form is provided by your employer; it’s basically their declaration to the CRA that your employment meets certain conditions.
It's crucial because it officially states that you are required to work from home and incur expenses for your workspace as a part of your employment.
[How to Obtain a T2200 Form]
Your employer is responsible for completing and signing your T2200 form to confirm that working from home is a condition of your job.
If your employer hasn’t already provided this form, you can ask them to prepare one, especially if your job necessitates working from home and you have expenses to claim.
This is a key step because it substantiates your claim for home office expenses on your tax return. Without it, you might face difficulties proving that your claims are legitimate if you’re ever audited by the CRA.
2023 Home Office Expense Rule Changes
In 2023, the CRA has discontinued the temporary flat rate method that was introduced during the pandemic.
This method allowed employees to claim a standard amount for their home office expenses without needing to calculate the actual costs or provide detailed documentation.
It was put in place to simplify the process for employees who were suddenly working from home due to COVID-19.
Now, employees must return to the detailed method, documenting and calculating the actual expenses incurred for their home office.
This means you'll need to keep a record of all relevant expenses and calculate the portion that relates to your home office use.
Detailed Calculation and Claim Process
Calculating your claim involves determining the percentage of your home that is actually used for work.
The most common way to do this is to measure your workspace in square feet. Then divide it by the total area of your home to find a “business use percentage”.
For example, if your office is 100 square feet and your home is 1,000 square feet, then 10% of your home’s total area is used for work. This means you can claim 10% of the eligible expenses.
It’s CRA’s way of making sure that you’re not deducting a bunch of home-based expenses that don’t actually relate to your work activities.
When claiming, ensure that each expense is directly related to your work activity and is reasonable. The expenses must be documented, with receipts kept to support your claim.
Eligible Home Office Expenses
Under the detailed method, employees can claim a variety of expenses related to their home office, but it's important to understand just what is actually eligible.
Employees - Not Commission-based
Here’s a detailed list of eligible home office expenses for employees who are not commission-based:
- Utilities - Costs related to lighting and heating the home office area as well as water supply.
- Home Internet Access - Costs incurred for internet access, excluding installation or the cost of equipment like modems and routers.
- Repairs and Maintenance - This includes only those expenses directly related to the home office space, such as repairs made to the room or area you work in.
- Rent - If you're renting your home, you can also claim the portion of the rent that corresponds to the home office space.
Here’s an example of how this calculation might work.
In this example, Paul works from home as an employee. His home office is 150 square feet and his condo is 1,000 square feet. This means his office takes up 15% of his home.
Throughout the year, Paul paid
- $400 in heating costs
- $600 for electricity
- $300 for water
- $50 in repairs that relate directly to his office space
- $30,000 in rent, and
- $1,200 in home internet fees
For a total of $32,550. These costs relate to the entire home, so we then need to prorate them based on the 15% business use percentage that we calculated earlier.
$32,550 x 15% is $4,882.50 that Paul can claim as a deduction against his employment income.
Employees - Commission-based
Commission-based employees, like sales people and realtors, have a few additional expenses that are available for them to claim.
These include:
- Home Insurance - A portion of your home insurance costs if your office space is in your insured residence.
- Property Taxes - The part of your property taxes attributable to your home office.
- Equipment Leasing Costs - If you lease equipment like computers or phones for your work, the portion used for business can be claimed.
All expenses will need to be prorated based on the business use percentage of your home.
See here [point to one side] for an example of home office expense calculation for a commission-based employee.
The process is exactly the same, but there are those three extra expense types available.
Home Office Expenses Not Eligible for Employees
Now let’s look at some home office expense types that often get claimed incorrectly by employees.
These include:
- Mortgage interest payments
- Mortgage principal payments
- Home internet connection fees (meaning costs incurred to actually set up your home internet)
- Furniture
- Capital expenses like replacing windows and flooring for example
- Wall decorations
These ones aren’t eligible to claim.
Hopefully this helps you avoid some of the common incorrectly claimed home office expenses for employees.
Home Office Expense Calculator for Employees
We’ve also included a handy home office expense calculator that you can use.
Grab a copy and then start by entering the square footage of your home office and the square footage of your total home.
Then just enter your applicable expense amounts in the noted fields.
It will automatically calculate your total home expenses and then the prorated amount that can be claimed.
Documentation and Compliance
And as a CPA, I feel a sort of strange compulsion to reiterate the importance of documentation.
Proper documentation is the backbone of your home office expense claim. You’ll want to keep all receipts and records of expenses you're claiming.
This includes utility bills, internet charges, rent statements, and any repair or maintenance invoices.
Each expense should be clearly linked to your home office use.
For example, if you claim a portion of your rent or utilities, you should have a way to show how you calculated the business-use percentage of these costs.
Thankfully our expense calculator linked below breaks down this information clearly.
In case the CRA audits your tax return, having detailed and organized records will help prove your claims are valid.
It’s not just about being eligible; it’s about being able to demonstrate your eligibility effectively!
Final Thoughts
Alright, that’s a wrap on home office expenses for employees in Canada.
Remember, the key points are understanding your eligibility, knowing what expenses you can claim, accurately calculating those expenses, and keeping thorough documentation.
By following these guidelines, you can maximize your home office expense claims and stay compliant with the CRA.
