What are work-from-home tax credits and tax deductions?

If you worked from home in Canada due to Covid-19 during the 2020, 2021 or 2022 tax years. you may be eligible for tax credits or tax deductions that could give you big savings.

When the Canadian government mandated its compulsory stay-at-home orders in 2020 because of the Covid-19 pandemic, many businesses established a work-from-home environment for their employees. In response, the Canada Revenue Agency (CRA) introduced a tax deduction that allows Canadians to deduct home office expenses from their taxes if they worked from home due to Covid-19.

As with other credit and rebate claims, it’s up to you to calculate and claim their tax benefit, so it’s important to know how the tax deduction works. Here’s information on how you could be eligible for the tax help, and how much you could potentially get back on your taxes.

What are tax credits and tax deductions?

A tax credit is like a store credit. If you had a $100 store credit, you would get $100 off whatever you purchased there. A tax credit works the same way. If you owed $1000 in taxes and had a $100 tax credit, you would only owe $900 after the tax credit.

A tax deduction works a little differently. It decreases your taxable income, which can lower your tax bill. For example, if you can deduct $1000 from your taxable income, you will be taxed on the smaller amount.

A CRA tax deduction is available to Canadians who worked from home due to Covid-19 during the pandemic. The CRA has two main ways that you can calculate this deduction for working at home:

• Flat rate method
• Detailed method

Flat rate method

The flat rate method applies to working from home due to Covid-19 in the 2020, 2021, and 2022 tax years. The flat rate method for tax filing is quick and easy to calculate for a tax deduction.

To calculate it, the CRA says the following:

“If you worked more than 50% of the time from home for a period of at least four consecutive weeks in the year due to the Covid-19 pandemic, you can claim $2 for each day you worked from home during that period.”

The CRA also says:

“You can then also claim any additional days you worked at home in the year due to the Covid-19 pandemic. The maximum amount that can be claimed is $400 per individual in 2020 and $500 per individual in 2021 and in 2022. This method can only be used for the 2020, 2021 and 2022 tax years.”

The CRA also requires completion of their T777S form.

Detailed method

The option of using the detailed method applies to eligible employees working from home in 2020, 2021, or 2022 due to the Covid-19 pandemic, and to eligible employees who were required to work from home.

It allows you to claim the actual expenses you incurred while working at home. This includes electricity and heating bills, home internet access fees, rent, and other expenses. The CRA lists the expenses that are eligible for tax deductions. With this method, it’s possible to save more than with the flat rate method. However, it is a bit more complicated.

The CRA has two ways to determine if the actual expenses are eligible.

• “Your work space is where you mainly (more than 50% of the time) work for a period of at least four consecutive weeks in the year. The period can be longer than a month.”
• “You only use your work space to earn employment income. You also have to use it regularly and continually for meeting clients, customers, or other people while doing your work.”

You also need to have your employer sign the T2200S form. Note that you cannot deduct any items that your employer has already paid for.

Which deductions can you take?

The CRA sets out the criteria for what home office expenses you can claim for tax deductions. They vary, depending on whether you are a salaried employee, or work on commission, so you need to read these first before filling out your tax forms for your income tax return.

Once you have a handle on what you can claim, as well as the eligibility criteria, the following information can help you with the detailed method.

How to calculate your workspace-in-the-home expenses

Follow the six steps outlined by the CRA to calculate your home office expenses. In summary, they are:

1. Work out the size of your home and the size of your workspace, and use those figures to calculate what percentage of your home is used for your job.
2. Add up your eligible home expenses for the period, then calculate the portion to claim based on the percentage if you home used.
3. Add up your office supplies and any other work expenses.
4. Calculate your maximum deduction for workspace in the home expenses; you need to know your employment income for this.
5. Work out how much you’re able to carry forward.
6. Calculate the total home office expenses you can claim.

Which method should you choose?

When comparing the two methods of determining your work-from-home tax deduction, the flat rate method is the easier of the two. If you don’t have high work-from-home expenses and haven’t kept supporting documents, the flat rate method makes sense. On the other hand, if you have higher work-from-home expenses and prefer more accurate reporting, the detailed method is probably preferable.

Frequently asked questions about getting a tax deduction for working from home

How much is the tax deduction for working from home?

There are two different methods for working out this deduction. You can choose the flat rate or detailed method. Please read the information and use the calculator on the CRA website to see which is right for you.

Can I claim the work-from-home tax deduction if I choose to work from home?

Yes. But the flat rate tax deduction amount is $400 for 2020, and $500 for 2021 and 2022.

Is it a credit or a deduction?

This CRA benefit available to Canadians working from home is a tax deduction – it reduces your overall taxable income.