COVID-19 and Employees' Home Office Expenses
Although tight rules in subsection 8(13) make it difficult for employees
to deduct their COVID-19-related home office expenses, planning for the
possibility of such deductions could begin. Employers should consider
concluding agreements with employees about the requirement to have a
home office and planning for the possibility of needing to issue large
numbers of form T 2200, "Declaration of Conditions of Employment." Some
employers, wary of the costs involved, may choose instead to reimburse
employees for a modest amount of office supplies. The CRA accepts that
reimbursement of an amount not exceeding $500 for the purchase of
personal computer equipment will be non-taxable in the COVID-19 context
(CRA document no. 2020-0845431C6, April 22, 2020 [French only]). Further
CRA guidance may be expected, and there is a strong possibility that
additional rules will be relaxed.
Home office expenses may be deductible to an employee under either
paragraph 8(1)(f) or (i), each of which has its own tests.
Subsection 8(13) provides additional requirements.
The CRA considers (in CRA document nos. 2000-0022015, May 17, 2000 and
2011-0394321E5, March 1, 2011) that a work-from-home arrangement may be
initially entered into voluntarily and formalized later; once the
agreement or unilateral notice (which need not be in writing) is in
place, the employee can be considered to be "required" (for the purposes
of paragraph 8(1)(f) or (i)) to provide the home workspace and incur
the expenses. Since it is not clear whether the concluding of a formal
arrangement is considered to back-date the requirement to the time that
it started informally, such agreements should be concluded soon.
Subparagraph 8(13)(a)(ii) requires that the workspace be used
exclusively for the purpose of earning employment income and used on a
regular and continuous basis for meeting customers or other persons in
the ordinary course of performing the employment duties. Since the CRA's
opinion has been that "meeting" means a physical encounter (that is, in
person) (CRA document no. 2013-0481171E5, December 10, 2013), the
physical distancing requirements recommended by governments seem to make
this test impossible to meet. Informal-procedure TCC decisions to the
contrary (for example, Landry v. The Queen
, 2007 TCC 383
) have not changed this policy.
An alternative route to deductibility is subparagraph 8(13)(a)(i), which
requires that the workspace at home be where the employee "principally"
performs the duties of the office or employment. The CRA's view is
that, in this context, "principally" means more than 50 percent of the
time. In the context of temporary mandatory work-from-home policies, a
question arises as to whether the 50 percent threshold is computed over
the course of a full year or a part of the year. Since subsection 8(1)
refers to "computing a taxpayer's income for a taxation year from an
office or employment," it would be reasonable to infer that the
"principally" test should be determined over the course of the full
period of employment in the calendar year, rather than for just the part
of the year during which the employee is required to work from home for
that employment. This would imply that for a 12-month period
of employment in which the person works either fully from home or not at
all from home for any given month, the work-from-home policy would have
to be in place for at least 6 months in order to meet the test.
The CRA has previously opined (CRA document no. 2007-0227511E5,
December 13, 2007) that when determining the appropriate "total hours"
in the application of the "principally" test, it would be reasonable to
begin with the number of hours that the employee is required to work
under the terms of his or her employment contract. As such, various
considerations would have an impact on this calculation, including
whether an employer approves overtime or different working hours, or
whether an employee's working hours are stable throughout the year. For
example, certain industries' business cycles may fluctuate, be seasonal,
or be project-oriented, with the majority of working hours being
compressed into a few months. Thus, the 50 percent threshold could be
met in less than 6 months.
An alternative view is that it is sufficient to meet the 50 percent
threshold for just a few months rather than the whole of the employment
in the year. Policy intent is one factor in statutory interpretation,
and the above-cited words in subsection 8(1) are unlikely to have been
written in contemplation of a pandemic.
RSM Canada LLP, Toronto