If you worked from a home office for two weeks or more this year the Canada Revenue Agency says you are eligible for tax deductions and one accountant is encouraging you to take that opportunity.
“I don’t like the government,” states Leo Deurbrouck of Leo’s Mobile Tax Service, “and in my opinion, you should keep as much of your money in your pocket as possible.”
According to Deurbrouck, the CRA is offering two different ways one can claim a home office expenses; a simplified method, and a more detailed method.
The simplified method was introduced by the government just this past year. In light of the COVID-19 pandemic, more people than usual were working from their bedrooms, basements, and dining rooms, likely without knowing they could gain a tax deduction for doing so.
“In the simplified method, that was introduced recently you get two bucks a day for up to a maximum of 200 working days, so a maximum claim of $400.”
Deurbrouck says this model is ideal for people who were unaware they could get a write-off for working from home and did not collect their records throughout the year. He notes the new T2200S form is easy to fill out as very little official documentation is required. While one might jump at the chance to save a quick $400 with virtually no effort, Deurbrouk advice is to use the more traditional route.
“If somebody has kept all of their documents, I would definitely recommend going the detailed method because you would likely get a larger claim,” he says
To figure out roughly how much you are eligible for under the detailed method (the T2200 form) does require a bit of mathematics. First, Deurbrouck explains, a basic calculation is needed to determine the percentage of your allowable claim. Here there are two options: either square footage used divided by the square footage of your house or total rooms used divided by the total number of rooms in your house.
“Generally we would use whatever of those calculations is the higher percentage,” he says.
Next, he says you would add all of your expenses together, including items like hydro, water, heating, and internet costs. Commissioned employees are able to write-off several additional items including necessary office renovations, home insurance, and property tax.
Once those expenses are calculated, Deurbrouck says you take the percentage of your allowable claim from that gross total.
To outline the process in a different way, Deurbrouck provides the following example...
Tom makes $30,000 a year. His relatively small house is 2,000 square feet and his workspace occupies 450 square feet. With that in mind, the percentage of his allowable claim is 450 over 2,000, or 22.5%. This past year, Tom has paid $1,250 for gas heating, another $2,000 for electricity. Because he is a commissioned employee, he was able to take a few other factors into account including $980 in home insurance, $2,300 in property tax, and $500 in repairs to his office. Altogether, he has $7,030 in gross expenses. 22.5% of $7,030 is $1,581.75, which is Tom's allowable claim.
So, by way of comparison, Deurbrouck says Tom would be able to deduct $400 from his $30,000 salary using the simple method or $1,581.75 using the more thorough method.
“That’s a substantial difference,” he remarks. “But keep in mind that is not cash money that you are going to be getting on your tax return, that is deferred income."
For those who would prefer to leave the math to the professionals, Deurbrouck says he would happily field any questions come tax season.