Poet T.S. Eliot is famous for having written, “April is the cruellest month.” But he’s also famous for being a bit of a curmudgeon.
Unlike T.S., most of us welcome the longer days, warmer temperatures, greening grasses, rising tulips and blossoming trees.
This is my favourite season.
I long for the rebirth and optimism (“stirring dull roots with spring rain”) that nature provides during the months of April and May.
And maybe this is odd (though definitely not curmudgeonly), but I actually look forward to completing my tax returns in April while watching the robins and cardinals search for food in the backyard trees.
This year, I want to spread my spring happiness around by providing you with a four-part series on tax deductions that all DIY tax preparers can utilize. I also recommend reading my in-depth review of tax strategies for business owners.
As always, this blog deals with general tax planning topics and shouldn’t be considered as tax advice. Before implementing anything written here, I urge you to consult a professional advisor to ensure it’s right for your circumstances.
2020 tax year: The home office edition
I have been working mostly from home since the emergency order in March 2020. If you are in the same situation, you should know that CRA issued new guidelines around claiming home office deductions.
Certain home office expenses are generally deductible by employees or self-employed individuals who perform at least 50% of employment or self-employment services at home.
For the 2020 tax year, eligible individuals can choose between claiming the expenses under the new temporary flat rate or use a more detailed method.
Below are the two options.
Option 1: The flat rate method
The government will allow anyone who worked from home in 2020 to claim $2 each day they were at home, up to a maximum of $400, without a tax slip issued by their employer.
To select this simplified method, you can fill out Form T777S, Statement of Employment Expenses for Working at Home Due to COVID-19, when filling your tax return and receive up to $400 without supporting documents.
Here’s the fine print.
In order to claim the expense using the flat rate method, you must meet the following eligibility criteria:
- Worked from home in 2020 due to the COVID-19 pandemic or required by employer to work from home;
- Worked more than 50% of the time from home for at least four consecutive weeks in 2020;
- Not claiming any other employment expenses; AND
- Employer did not reimburse all the home office expenses.
Option 2: The detailed method
I like the simplicity of the flat rate method. But in my case, it underestimates my actual cost of working from home.
The detailed method requires that you calculate your actual expenses incurred and the employment use of the workspace, including factors such as the size of the home and workspace. Supporting documents must be kept under this method.
For example –
Let’s assume my electricity, heat and water cost $6,500 in 2020, my office space is 200 square feet, and my total living space in my home is 2,000 square feet.
I can deduct a portion of this expense based on this calculation:
200/2000 * $6,500 = $650
Here are some of the eligible expenses for salaried and commission employees:
- Salaried employees: electricity, heat and water; utilities portion of condo fees; maintenance and minor repairs costs; rent for house or apartment.
- Commission employees: everything as for salaried employees above; home insurance; property taxes; lease of cell phone, computer, laptop, tablet, fax machine etc. that relate to earning commission income.
Be careful here.
Non-eligible expenses include mortgage interest, principal mortgage payments, home internet connection fees, furniture, and certain capital expenses. Also, home office expenses claimed cannot exceed the net employment income, but the excess can be carried forward to future years against employment income from the same employer.
Below is the fine print on option 2.
All eligibility criteria must be met in order to claim actual expenses:
- Worked from home in 2020 due to the COVID-19 pandemic or required by employer to work from home (same as the flat method);
- Worked more than 50% of the time from home for at least four consecutive weeks in 2020 (same as the flat method);
- Have a completed and signed Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19, or Form T2200, Declaration of Conditions of Employment, from an employer (different form from the flat method); AND
- The expenses are used directly for work during the period (same as the flat method).
To help you in choosing between the detailed method or the flat rate method, the CRA has created a calculator available on their website to determine the best approach for calculating your home office expenses deductible for 2020.
Please refer to the CRA website for more information on home office expenses.
I found the CRA tax calculator fast and easy to use, but it does assume you have your eligible expenses
itemized and documentation is available.
In my personal situation, the calculator indicated I could deduct $1,850 for my home office. If I assume a 50% marginal tax rate, the deduction saves me about $925.
So there’s nothing wrong with April in my books. For me, and maybe for you, it’s the kindest month when it rains down tax deductions!
If you are unsure whether you can deduct your home office expenses, please call our office. We’ll walk you through the calculations and help you determine which approach provides the biggest tax deduction.
Never Retire Profile
The nominations for the 2021 Academy Awards were just announced, with the reminder that this recognition of artistic and technical excellence in the film industry is now 93 years old. The first award “show” was a private party hosted by Douglas Fairbanks in 1929, with the ceremony itself lasting about 15 minutes. At four hours and 23 minutes, the longest show was in 2002—pretty spritely (or just long-winded) for a 74 year old! Traditionally, only movies shown in theatres can receive a nomination, but in this COVID year where so much has changed, the ceremony will be virtual and films released only through streaming services are also eligible. With this pandemic disruption and viewership of the show declining over the years, who knows where the Oscars are headed. But they will definitely not retire!
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We offer you a range of services from creating bespoke financial plans and providing investment advice to helping you take advantage of our investment models. If you would like more information on the Wealth Navigator Process or our team, call me any time at 416.355.6370 or email me at richard.dri@scotiawealth.com.
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source https://richarddri.ca/how-to-write-off-your-home-office-expenses/
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