Still working from home? Don’t miss out on these valuable tax deductions this year

Three years into the COVID-19 pandemic, hundreds of thousands of Canadians are still working remotely from home or engaging in a hybrid work model. In early 2022, nearly half of all employed Canadians worked from home for at least some days, according to a survey conducted by the Environics Institute for Survey Research.

With tax season underway — the deadline for most Canadians to file their tax returns is May 1 — many Canadians may be eligible to receive up to a $500 tax deduction through the federal government’s temporary flat rate method home office expenses claim.

The deduction is meant “to offset the costs an employee would incur by working from home instead of working at a place where those essentials are provided,” explained Janet Gray, a certified financial planner with Money Coaches Canada.

Here’s what you need to know about this home office expenses claim, along with tips from two experts on how remote and hybrid workers can make the most of the tax deduction.

What counts as working from home?

Canadians are eligible for the tax deduction, under the “temporary flat rate method,” if they worked from home more than 50 per cent of the time for at least four consecutive weeks in 2022. Sick days, vacation days and other days off, however, cannot be counted toward the claim.

Let’s take this example: Genevieve is a full-time worker. In January 2022, she worked from home three days a week and went into the office twice a week. For the rest of the year (from February to December), she went into the office four times a week and only worked remotely once a week.

Genevieve is eligible to make a claim under the temporary flat rate method because she worked from home more than 50 per cent of the time for four consecutive weeks.

How much am I eligible to receive?

Under the temporary flat rate method, eligible workers can receive $2 for each day they worked from home, up to a maximum of $500 or 250 days. The maximum claim per individual was previously $400 in 2020 but was raised to $500 for the 2021 and 2022 tax years.

How do I apply for the tax deduction?

Once they have confirmed their eligibility, workers can make a claim under the temporary flat rate method by using “Option 1 — Temporary flat rate method” on the T777S form. Claimants must then enter the amount from that form on their income tax return.

Most workers who use a tax software to file their income taxes will be prompted to claim this deduction, noted Barry Choi, a personal finance expert and blogger at Money We Have.

Under the temporary flat rate method, employees don’t need to keep supporting documents nor have their employer complete a signed form.

What’s the difference between the temporary flat rate method and the detailed method?

The temporary flat rate model is a simplified system created in response to the pandemic, while the detailed method predates COVID-19.

As its name suggests, the temporary model is a flat rate deduction based on the number of days employees work remotely from a home office. The detailed method, however, allows employees to claim the actual amounts incurred by working from home.

Though the detailed method could result in a greater tax deduction, it often requires more time to complete, noted Gray, adding that employees who choose this method must also keep receipts and supporting documents for each claim, unlike the temporary flat rate model. Employees will also need their employer to sign off on a separate form (forms T2200S or T2200) to go through this method.

What other expenses can I claim if I work from home?

Expenses employees can claim under the detailed method include electricity, heat, water home internet access and a “reasonable portion” of rent. In addition, commission employees can also claim deductions for home insurance, property tax and the lease of electronics related to earning their commission income.

“For someone who works from home that may have more additional expenses and is claiming not just their home internet, but also their rent or utilities, maybe they’ve done the math and it makes more sense to do the detailed method because they can get more money back,” explained Choi.

What if I’m self-employed?

Self-employed workers should not apply under the temporary flat rate or detailed methods, but rather use the business-use-of-home expenses claim (form T2125), said Gray.

“You can claim a lot more expenses because you’re self-employed,” she said, “And you don’t you don’t need anyone (else) to sign off on it.”

Through this method, for example, workers can deduct part of their mortgage interest from their taxable income, while they cannot do so under the home office expense claim.

Throughout the pandemic, many Canadians turned to entrepreneurship or self-employment. A June 2022 study by Intuit QuickBooks found that one in four Canadian small businesses were started during the pandemic. While taxes are often more complicated for self-employed entrepreneurs and gig workers compared to salaried employees, they may be entitled to additional tax deductions and benefits.

What is a tax deduction, and how does it differ from a tax credit?

Both methods of the home office expense claim are applied as tax deductions. Put simply, “a tax deduction lowers one’s taxable income, whereas the tax credit offsets taxes overall,” explained Choi.

In other words, a tax deduction reduces the amount of income that is taxed, which reduces the income tax overall. The actual savings for each person will be determined by the tax rate.

A tax credit, meanwhile, reduces the amount of income tax paid.

Joshua Chong is a Toronto-based staff reporter for the Star’s Express Desk. Follow him on Twitter: @joshualdwchong