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CPA

Home Office Expenses for Employees: A Brief Guide

Small businesses in Canada faced unprecedented challenges in 2020 due to the outbreak of COVID-19. The global pandemic resulted in lockdown and suspension of outdoor activities, restricting millions of people in their homes.

 

Therefore, Canadians had to set up their workspace in their home. Canada Revenue Agency (CRA) considered the current situation and simplified claiming home office expenses deduction for employees who worked from home and meet eligibility criteria.

Employees can claim many types of home office expenses, including office supplies and certain phone costs. Moreover, they can also claim the cost of setting up a workspace in the home in personal tax returns to minimize their tax burden.

 

Due to COVID-19, employees who spent more than 50% of the time working from home for at least four weeks consecutively in 2020 are eligible to claim a deduction of $2 for each day, plus any other days they worked from home last year up to a maximum of $400.

The new temporary flat rate method is designed to simplify the process and doesn't require employees to file the Form T2200 or Form T2200S. Employees who opt for detailed methods can take advantage of launched simplified forms (Form T2200S and Form T777S)

The CRA has also introduced a calculator to help employees deduct their qualifying home office expenses without any hassle. Now let's move on to learn how the new normal, i.e., remote working and home office expenses for employees, affect the employer.

 

An image of a modern workspace at home.

 

Home Office Expenses for Employees

 

The home office expense for employees will not directly affect employers as the deductions available relate to employees' personal tax calculation. However, employers will get affected indirectly due to the home office expenses incurred by employees.

For instance, they will require to maintain records to demonstrate that employees receive a reasonable allowance for commuting costs. More importantly, the increase or decrease in employee costs will directly influence the taxable income.

 

Potential cost savings

 

Employers will save on utility bills (electricity, heating, and cooling). Companies who reimburse parking charges or offer parking spots will save some extra money. Moreover, businesses can save more money by adopting remote working trends and leasing a smaller office.

 

Potential expenses

 

Employers might need to purchase equipment and tools for employees to carry out their job remotely. Some companies have to switch to cloud infrastructure to run their operations and facilitate collaboration across remote teams efficiently.

 

How does it affect your small business?

 

For small businesses, employees' salaries and costs related to running day-to-day operations represent a significant portion of their costs. A substantial change in this figure can affect the tax liability, for the better or worse.

If a business manages to minimize its operating costs, the income tax liability will increase due to higher profits, and vice versa. Businesses can increase their tax savings by proper tax planning and claiming deductions made available by the CRA.

Are you looking for full-cycle accounting services in Edmonton? Contact us today. At Duggal Professional Corporation, we offer a wide range of financial services and solutions, including accounting, business reporting, and more. Our corporate tax accountant in Edmonton can help your business to create accurate tax assessments.

 

Call 780-863-2224 to get started right away.