With the “new” normal quickly becoming just normal, working temporarily or permanently from home is starting to become a reality. If you’ve made the transition, you may be wondering if you’ll be able to claim any tax deductions for any work from home-related expenses.
Are you an employee?
Running your own business as a sole proprietor, being an independent contractor or if more than 50% of your annual income is commission-based means that you can claim a number of tax deductions.
However, many of us are still considered employees even though we’re working from home. Salaried employees are limited in their ability to claim deductions for expenses incurred in providing services to an employer. So for most of us, this means office space maintenance or travel expenses aren’t deductible.
When can I claim?
The Income Tax Act does provide specific cases for an employee to claim tax deductions related to home office expenses:
• If you are earning a salary but you are using your home office regularly and exclusively to perform work for your employer.
• If you are spending more than 50% of your total working hours working from your home office – it needs to be a dedicated workspace and not just your dining room table.
For this tax year, ending 28 February 2021, with the lockdown and requirements to only work limited days in a week, many salaried employees could spend more than 50% of their total working hours in their home offices. Working at home from the start of lockdown until September would give you grounds to claim.
How can I claim?
Claiming home office expenses is done in your ITR12 tax return form. You’ll need to retain the proof of your expenses – think invoices and statements – and you’ll need to record the days which you’ve worked from home to prove that it was more than 50% of your total hours worked. Save any communication with your employer regarding the days required to work from home to assist in proving this.
Rates and interest expenses related to your residence can be deducted too. You’ll need to divide your home office size by your total residence to calculate what percentage of these expenses can be claimed.
Another approach would be to claim home office expenses from your employer on a reimbursement basis. Essentially, you’ll incur the costs and then be reimbursed by your employer for these costs.
This way, it’ll be easier to prove the expenses were for business purposes. You’ll need supporting evidence of the reimbursements and it’ll require more involvement from the employer in certifying that the expenses are related to your employer’s business.
The flip side
If you are claiming part of your primary residence as an office, you’ll receive less of a capital gains tax break when you sell your property. This will potentially offset the amount you save in taxes from claiming home office deductions now