Businesses are receiving a flood of requests from employees for completed tax forms they need to claim home office expenses this tax season.
Employees working from home more than half the time under an agreement with their employer can claim home office expenses for 2023, meaning almost all employees at some firms could be eligible, said Edward Rajaratnam, a tax partner with EY Canada in Toronto.
Simplified temporary methods of claiming employee expenses introduced because of Covid-19 — including the flat-rate method that allowed taxpayers to claim up to $400 for 2020 and $500 for 2021 and 2022 — are not available for 2023.
Eligible employees who want to claim a deduction for 2023 must use the standard method, which requires them to obtain Form T2200: Declaration of Conditions of Employment from their employers.
Companies that have been providing the three-page form to employees upon request “are now realizing they can’t do this on a manual basis” due the number of requests they’re receiving from employees, Rajaratnam said.
He recommends firms establish automated processes to prepare T2200s for all eligible employees. “Whether [the firms] want to distribute them upon request or not, everybody is figuring that out,” he said.
The CRA’s decision to eliminate the flat-rate method for 2023 does “increase paperwork for our members,” said Michelle Auger, senior policy analyst for the Canadian Federation of Independent Business (CFIB) in Toronto, in an emailed response to questions.
The CFIB recommended in a 2023 report that the CRA “make the temporary flat rate method for home office expenses permanent, given the emergence of a hybrid working model and the number of people who will likely continue to work from home at least some of the time.”
Rajaratnam said some firms aren’t sure how to respond to question six on the T2200 for 2023, which asks for the approximate percentage of the employee’s duties that were performed at their home office.
If the company had a policy through 2023 that employees could work at home three days a week, should the company report that an employee worked from home 60% of the time? Or must the company determine the percentage of time each employee actually worked from home?
Rajaratnam said that since the question on the form asks for an approximate percentage, a company could reasonably indicate a percentage of time that aligned with its policy — unless it knew an employee worked from home significantly more or less than company policy required.
“I would say the liability [risk for employers] is low,” Rajaratnam said. “However, there is an expectation that companies have done some due diligence.”
Rajaratnam said some firms were reluctant to provide employees with completed T2200s proactively, concerned that the CRA’s policy position on work from home expenses for 2023 “might entice [employees] to want to work from home a lot more in 2024 onward,” he said.
“This is a real issue in a lot of the downtown offices,” Rajaratnam said.
Auger said that providing T2200s is “one of those issues where our members could potentially be split.” Employers who choose not to provide a completed form “could have issues retaining staff. Labour shortages remain a top priority for our members,” she said.
An employee must be required to work from home as a condition of their employment, more than half the time for at least four consecutive weeks in a year, to be eligible to claim employment expenses. Employees can’t claim expenses the employer has already paid. Employees claiming home office expenses need not file the T2200 with their return but must provide one if the CRA asks.
On Feb. 2, the CRA issued updated guidance for 2023 indicating an employee would have been required to work from home if they did so voluntarily under a “formal telework arrangement with their employer.” The arrangement could be written or verbal.
The CRA has not provided guidance for claiming home office expenses for 2024 and beyond, but said “guidance for claiming employment expenses will remain consistent with the 2023 tax year, unless there are significant changes in legislation.”