Work From Home Tax Credit in Canada
What You Should Know
- The work from home credit lowers your taxable income.
- There are two methods; the simple and detailed method.
- The simple method provides a flat $2 deduction per remote working day.
- The detailed method involves your employer and keeping receipts.
The work from home tax credit allows you to deduct from your income taxes if you worked at home throughout COVID-19. The credit is available to employees who worked from home during the 2020 to 2022 tax years. It's designed to reimburse you for expenses related to your home office, such as supplies, phone, and internet costs.
There are two methods to calculate the credit; the flat rate and the detailed method. While the detailed method is more challenging, you may receive a larger deduction. Continue reading to learn eligibility requirements and which way is best for you.
Eligibility Criteria
You must meet all of the following criteria:
- You worked from home due to the COVID-19 pandemic, or your employer required you to work from home.
- You spent more than 50% of your time working from home for four consecutive weeks or longer in 2020.
- If using the detailed method, you have completed signed Form T2200S or Form T2200 from your employer.
- You use personal funds to pay for the expenses during the period.
| Flat Rate Method | Detailed Method | |
|---|---|---|
| Pros | ||
| Cons |
Method One: Flat Rate
This is the easiest method to get the work from home credit in Canada. You can receive a $2 deduction for each day you worked from home if you meet eligibility requirements. The deduction is a maximum of $500 in 2021 and 2022, meaning no more than 250 working days. It only applies to days you worked full-time or part-time. You can't receive the credit for days where you were sick, on vacation, or other days off.
It is the easiest method because it will not involve your employer, you don't have to keep supporting documents, and you won't need to calculate the size of your working area. If you want to proceed with the flat rate method, you can use the following steps.
Step A: Confirm Eligibility Requirements
Although the requirements are mentioned near the top of this article, you can use the official Government of Canada page to do more research.
Step B: Complete Form T777S
Form T777S is formally known as the Statement of Employment Expenses for Working at Home Due to COVID-19. When completing your income taxes, sign and submit this form to receive the work-from-home benefit. You can find the official document here.
Within the form, you will need to calculate the number of days worked. For example, imagine you worked from home on weekdays between January 1st and December 31st, 2021. While this translates to 261 working days, you will need to subtract non-eligible days.
This includes statutory holidays (12), vacation time, and sick days. If you took a vacation for ten business days and were ill for three business days, you would need to deduct 27 days from 261. As a result, you would receive the $2 deduction on 236 days, or $472. This amount will be shown in Line 9939 of Form T777S.
Step C: Claim the Deduction
The final step is to claim the deduction on your income tax return. To do this, you must enter the previously calculated deduction on Line 22900 of your income tax return. The line will be titled "Other employment expenses."
Tip: What is a tax deduction?
A tax deduction is an eligible expense that can be subtracted from your taxable income. This lowers the amount of taxes you owe. For example, imagine you earned $100,000 and receive a $1,000 tax deduction.
The deduction would lower your taxable income to $99,000. In the 2021 tax year, this would change an Ontario resident's tax bill from $27,510.54 to $27,076.44. Consequently, the $1,000 tax deduction would save you $434.10. Another example of a deduction would be RRSP contributions.
A deduction is different from a tax credit, which proportionally lowers your tax bill. For example, a $1,000 tax credit would be deducted from your amount owned instead of income. This means it would decrease your $27,510.54 tax bill to $26,510.54. The Work From Home Tax Credit is a tax deduction, not a credit.
Method Two: Detailed
While the detailed method is more work, it may give you a more significant deduction. Instead of a $2 daily deduction, you can claim the total amount of relevant expenses paid. However, they must be supported by documents. You must also have your employer sign an additional form. If you wish to proceed with the detailed method, take a look at the steps below:
Step A: Confirm Eligibility Requirements
You can check the Government of Canada website to confirm your eligibility for the detailed deduction. The requirements are also listed earlier in this article.
Step B: Complete Relevant Forms
The detailed method provides you with two options depending on whether you only claim office expenses or additional fees. If you are only claiming home office expenses, you can use Form T777S, the same form as method one. However, if you plan to include additional fees, you must use Form T777. Other expenses may include things such as motor vehicles, accounting fees, tools, and parking.
Step C: Claim The Deduction
After completing Form T777S or Form T777, you will have calculated a final amount on Line 9368. You input the associated amount on Line 22900 of your tax return with this information. This line is known as "Other employment expenses." Regardless of the form you complete, it must be submitted with your tax return.
Additionally, your employer must complete and sign Form T2200S or Form T2200. While you will not need to submit these forms with your tax return, you must keep them for your records.
Step D: Keep Your Records
Every year, the CRA randomly audits submissions to maintain the integrity of the Canadian tax system. If pursuing the detailed method, you will need to keep the following information:
- Employer forms T2200S or T2200
- Any receipts, records, and supporting documents related to your deduction
Bottom Line
To conclude, understand that the work from home tax credit is a deduction which can be used to lower your taxable income. There are two variations of the deduction. While the flat rate method is more straightforward, there is a $500 limit. In contrast, the detailed method allows you to deduct all relevant expenses. Your best method depends on your prioritization of simplicity or maximum savings.