Working from home? You might get a refund
New expenses, emergency benefits mean 2021 tax season may be different for many
It’s safe to say that the 2021 tax season will be one for the books.
Millions of Canadians have been working from home for the first time due to the COVID-19 pandemic, and will have new expenses to claim. Millions more will have received the Canada Emergency Response Benefit (CERB) or one of the new temporary benefits, and may have a higher tax bill than usual.
And financial professionals are waiting to hear whether the rules — or the deadline — will be changed to accommodate for these unprecedented times.
Read on to find out what we know about how to prepare for the 2021 tax season.
Watch out for changes
Janet Gray, an Ottawa-based certified financial planner with national firm Money Coaches Canada, said this tax season comes with many unknowns.
“We know what the rules have been,” she said. “We don’t know how they’re going to be applied against the current situation, or if there’s going to be new rules coming out.”
Evelyn Jacks, author and president of the Knowledge Bureau, agreed. The CRA has been unclear on how it’ll assess these claims, she said, but so far the rules haven’t changed.
Gray expects a lot of people to appeal their tax bills, especially if the rules around how to claim home office expenses aren’t adjusted to make it easier to claim. She recommends turning to a tax professional if you have any doubts about your situation.
Think ahead
Brian Quinlan, partner at Campbell Lawless LLP, said it’s more important than ever not to procrastinate. “Don’t wait until April 30,” he said. Quinlan is concerned that people who received CERB or the new recovery benefits will not be prepared to pay the taxes on them. (The CERB is taxable, as are the new recovery benefits. However, the recovery benefits will be taxed10 per cent at the source, according to the
government website — but you could be required to pay a higher percentage, depending on your income.)
Tracey Bissett, a financial coach with Bissett Financial Fitness Inc., agreed. Don’t avoid the problem, she said — figure out what you might have to pay, and save up for it.
“When you get the actual facts, you can then strategize and then go forward with confidence,” she said.
Jacks advises looking for ways to offset owed taxes, such as making RRSP contributions or charitable donations. A tax professional can tell you how to make the most of those contributions and point out any credits that might help balance your books, she said.
What you can claim, and how
If you’re employed but working from home for the first time, your employer will be filing a second tax form — alongside the usual T4, there’s a form called a T2200 that will help guide what you can and cannot claim.
If you’re working from home as an employee, you can claim a portion of your utilities, rent or condominium fees, and a few other minor expenses such as renewable supplies like paper or pens, said Jacks.
The proportion is determined by how much space your office takes up — for example, if your home office is 20 per cent of your home, you can claim 20 per cent of your applicable bills. But, you have to meet the CRA’s conditions for a home office.
According to the federal government’s website, your home office must meet one of these two conditions: Either it’s where you primarily work (more than 50 per cent of the time), or you use it only to earn employment income, and use it on a continuous basis for meetings such as with clients or customers.
However, Jacks said some of these criteria could pose an issue for people who are new to working from home. First, if they haven’t been working at home for long enough, it may be difficult to meet that 50 per cent mark, she said.
And your office space needs to be partitioned in some way, so that you can measure it in square feet, she said — another problem for those who are making do at the kitchen counter or in the living room. And of course, Jacks is wondering whether the CRA will count Zoom meetings as part of that second condition.
Jacks hopes the CRA will change the rules to make it easier for people to claim these expenses.
After all, for those using a makeshift office in a small home, whether you can claim the space as an office or not is “a grey area.” She recommends partitioning off a small area for work the best you can.
“It challenges our tax system to modernize,” she said.
Quinlan suggests arguing that the room you’re using is your home office as its “principal” use — even if it’s used for other purposes when you’re not working.
“Those are the arguments I would make,” he said.
Quinlan said you should be communicating with your employer, especially if working from home is becoming a more long-term solution for your company. It’s always better if they reimburse you for home office expenses, he said, instead of having to claim them and hope for a return.
Bissett agreed. She said it’s possible there are reimbursements available that your employer hasn’t communicated to you.
If you are claiming your home office expenses for the first time, don’t expect a huge return, she said. In fact, it may not be worth the effort and potential audit for some, she said. (Gray expects more auditing this year to check that people are claiming the correct expenses.)
“I think it really depends on your situation,” Bissett said.
If two people in the home are working in the same office, Quinlan said they can either split the cost 50/50 on the their claims, or have the person with the more advantageous tax rate claim the whole office. If they’ve got two separate offices or workspaces, each would claim their own, he said.
Be reasonable
Remember that you’re not the only person facing a confusing tax season during an unprecedented and stressful time. Gray recommends just doing the best you can, and hiring a tax professional if there’s any confusion.
The bottom line, Jacks said, is to be reasonable with the expenses you claim, and hope the CRA will be, too.