
Work from Home Tax Credit: A Guide for Employees
Working from home has become the new normal for many Canadians especially since COVID-19. As a result the Canada Revenue Agency (CRA) introduced the work from home tax credit to help employees who are incurring additional home expenses while working remotely. But what is this credit and how can you get it? In this guide we’ll go through everything you need to know about the work from home tax credit in Canada, with a focus on employees in Toronto.
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What is the Work from Home Tax Credit?
The work from home tax credit is a tax deduction that allows you and eligible employees to claim eligible home office expenses while working from home. This credit is to help employees who have been forced to set up a home office, to offset costs like utilities, internet and office supplies.
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The credit can be a great way to reduce your taxable income and ultimately your tax liability. You may even get a refund if your employment expenses exceed your employment income.
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Who is Eligible for Work from Home Tax Relief
Who Can Claim the Credit?
To claim the work from home tax credit you must be a salaried or commissioned employee who has worked from home due to COVID-19 or because your employer required you to. To prove eligibility you need to have a completed and signed T2200 or T2200S form from your employer which confirms you were required to work from home and bear the related costs.
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Self employed individuals can also be able to claim home office expenses but they need to use different tax forms like Form T2125.
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What is a Workspace?
A workspace can be any office space used for work, whether it’s a dedicated room or a shared space in your home. However to qualify the space must be used regularly and exclusively for work purposes. This means if you have a specific area in your home set aside for work – even if it’s part of your living room – you may be eligible to claim some expenses.
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Eligible Expenses
Eligible expenses related to your employment must be incurred while working from home. Typical allowable expenses are home office expenses (like rent and utilities), office supplies and phone related costs. These expenses must be reasonable and proportionate to the workspace used.
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Home Office Expenses: What to Claim
Types of Eligible Expenses
The CRA allows you to claim many home office expenses. These capital expenses can be broken down into:
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Home Office Expenses: Rent, utilities, heat, home internet access fees and internet access fees are all examples of home office expenses that can be claimed.
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Office Supplies: Paper, pens and printer ink are also eligible.
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Phone Expenses: Phone bills and phone equipment used for work can be claimed if these expenses were required by your job.
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Work-Space-in-the-Home Limits
Work-space-in-the-home expenses are limited to the proportion of your home used for work and the time period you worked from home. For example if you used 10% of your home as your workspace you can only claim 10% of certain home expenses. Under the temporary flat rate method you cannot claim motor vehicle expenses.
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How to Claim Home Office Expenses on Your Tax Return
To claim home office expenses you need to fill out Form T777 or T777S depending on your situation. You’ll also need a signed T2200 or T2200S form from your employer to validate your claim. Keeping detailed records claiming home office expenses like receipts and invoices is important in case of an audit.
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Actual Home Office Expenses vs. Temporary Flat Rate Method
The CRA offers two ways to claim work from home expenses:
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Temporary Flat Rate Method: This method allows employees to claim $2 per day for each day they worked from home, up to a maximum of $500 for the year. This is simple and requires no receipts.
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Detailed Method: This method requires you to calculate your actual home office expenses. You’ll need to determine the percentage of your home used for work and keep detailed records of your expenses. More time consuming but can result in a larger deduction if your actual costs exceed the flat rate.
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Employment Expenses: What Else Can You Claim?
What are Employment Expenses?
Employment expenses are expenses incurred while performing your job such as home office expenses, office supplies and phone bills. To claim these expenses you’ll need to fill out Form T777 or T777S and have a signed T2200 or T2200S from your employer. If you opt for the temporary flat rate method, you are not allowed to claim additional employment expenses, like motor vehicle costs, on these forms.
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Examples
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Home Office Expenses: Rent, utilities, heat, property taxes and other expenses related to your workspace.
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Office Supplies: Paper, pens, staplers etc.
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Phone Costs: Monthly phone bills or equipment purchased for work.
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How to Calculate Your Deduction
Temporary Flat Rate Method vs. Detailed Method
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Temporary Flat Rate Method: Simple and easy. Claim $2 per day up to $500 in deductions.
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Detailed Method: Requires calculation and documentation but can result in higher deductions if your costs exceed $500.
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How to Calculate the Flat Rate
To use the flat rate claim count the number of days you worked from home and multiply by $2. This is capped at $500 so once you hit 250 days of working from home you’ve reached the maximum you could claim.
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Pros and Cons of Each Method
The flat rate is easier and requires no record keeping. The detailed method can result in more deductions if your home office expenses are high—just be prepared to spend more time calculating and gathering documents.
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How to Claim
How to Claim Work from Home Tax Deduction
To claim the deduction you need to:
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Fill Out the Right Forms: Use Form T777S or T777.
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Gather Required Documentation: Get a signed T2200 or T2200S from your employer and keep a record of all expenses.
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Required Forms and Documents
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Form T777S or T777: Use this to claim home office expenses.
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T2200 or T2200S Form: This form completed by your employer validates you were required to work from home.
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Records of Expenses: Keep receipts and invoices for expenses you plan to claim.
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How to Maximize Your Deduction
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Use the Detailed Method: If your expenses are over $500 use the detailed method.
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Claim All Eligible Expenses: Don’t forget small items like office supplies or phone costs—every little bit counts.
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Keep Good Records: Organized records are key to proving your eligibility.
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Record Keeping and Documentation
How to Organize and Store Your Records
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Filing System: Keep receipts and invoices in a binder or digital folder.
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Track Work Hours: Keep a record of the number of days you worked from home to support your claim.
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Spreadsheet: Spreadsheets can make it easy to track expenses, calculate deductions and stay organized.
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What Happens if You Don’t Keep Good Records
Not keeping good records of tax deductions can result in your claim being rejected. Worse, you could be penalized or fined if the CRA audits your tax return and can’t find enough evidence to support your claims.
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Tax Forms and Deadlines
What Forms Do I Need to Claim the Work from Home Tax Credit?
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Form T777S or T777: Use one of these forms depending on your situation.
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Signed T2200 or T2200S: Your employer must provide this form to validate you were required to work from home.
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Tax Return Deadline
The deadline to file your tax return is April 30th. If you or your spouse/common-law partner are self-employed the deadline is June 15th but any tax owing must still be paid by April 30th.
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Penalties for Late or Incomplete Filing
If you file late you could be penalized and interest on amounts owing. Filing an incomplete return can also result in delays, penalties or denial of certain credits.
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Special Cases
Can Self-Employed Claim Home Office Expenses?
Yes, self-employed can claim home office expenses. But they must use Form T2125 instead of T777S or T777 to claim the deduction. The rules are different and the CRA may require a more detailed breakdown of expenses.
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What if My Home Office Expenses Were Over $500?
If your expenses tax year were over $500 it’s probably best to use the detailed method. This way you can claim the actual expenses and potentially get a bigger deduction.
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Other Situations to Consider
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COVID-19 Eligibility: If you were required to work from home due to the pandemic you may still be eligible for the flat rate method in 2024.
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Shared Spaces: If you work in a shared area you’ll need to calculate the percentage of time and space used for work related activities.
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Bottom Line
The work from home tax credit gives employees in Toronto and across Canada a chance to offset the extra costs of working from home. Whether you use the flat rate method or the detailed method, understanding the eligibility and keeping good records is key. With the right approach you can reduce your taxable income and make working from home more affordable.
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Good records and knowing what you can claim is key. If you’re not sure or need help contact Tax Warriors in Toronto. We’ll make tax season easy.
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