Home Office Tax Rules Clarified
Home office tax rules clarified
The ability to write off a portion of your home office expenses is one of the greatest benefits to working from home, and those who do so generally have a good idea of the limits on what they can claim. However, some recent comments from the Canada Revenue Agency shed some light on the tests put to some of these deductions.
The Income Tax Act contains a set of rules that dictate whether or not certain home office expenses can be deducted. For employees, if the work space in your home is the location where you "principally" perform your duties of employment and you are "required by the contract of employment" to maintain such an office, you can deduct certain home office expenses. Note that this requirement must be certified by your employer on Form T2200.
A recent scenario addressed by the CRA delved into the definition of "principally." It involved a full-time child-protection worker, who we'll refer to as Sandy. She worked for a child-protection agency during "normal working hours" (defined as 8:30 a. m. to 4:30 p. m.,Monday to Friday) and also worked some "after-hours" shifts (defined as 4:30 p. m. to 8:30 a. m.,Monday to Friday, as well as weekends).
Those child-protection employees working normal hours work out of the agency's office space. Any employee who works the after-hours shifts is required to work out of his or her own home.
The agency stated that after-hours employees would qualify for home office expense deductions since this is their principal place of work.
The CRA was asked whether Sandy, who worked mostly normal working hours, but also held an after-hours position, would qualify for the home office expense deduction.
While the agency provided only one T4 slip showing the total amount paid, it did break out normal-working-hours pay and after-hours pay on Sandy's pay stub.
In 2006, the agency employer would not fully certify Sandy's T2200 form because it took the position that she did not qualify for the home office expense deduction because the time spent working at the agency's main office building exceeded the time she worked after hours from home. In other words, the "more than 50% test" was not met.
The CRA turned to the collective agreement governing the child-protection workers, which states that after-hours work is not considered to be overtime, but a "separate and distinct" employment. Therefore, the CRA felt that the time spent by Sandy during regular hours at the agency's office could indeed be excluded in determining whether Sandy "principally performs the duties of [the after-hours employment] in the home."
As a result, the CRA concluded that Sandy would be able to deduct a "reasonable amount" of expenses related to the work space in the home.
While the CRA's comments are not legally binding, they do serve as a helpful guideline for the CRA.