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I never did get my day in court, but I came awfully close.
I’ve been battling the taxman for more than a year in an attempt to get the Canada Revenue Agency to allow my work-from-home expenses for the 2020 tax year. That fight came to an end last week, when I received a reassessment allowing nearly all my home-office expenses, refunding my overpaid tax, reversing the arrears interest previously charged, and even paying me some refund interest (albeit, taxable).
I’m sharing my full story so you know what’s in store if you, too, decide to take on the CRA.
The origin of my tax dispute can be traced back to March 12, 2020. I had Toronto Maple Leafs tickets for that night’s game against the Nashville Predators, and my son was to meet me downtown after work for the game. But things would dramatically change: that afternoon, the NHL suspended all games due to COVID-19 and our offices shut down that evening for what would turn out to be many months.
As of March 13, I began working from home full time, using a spare bedroom as my new office. I deducted some home-office expenses for the first time in my career when I filed my 2020 tax return.
Employees who are working from home due to the pandemic have two methods to claim work-from-home expenses: the temporary flat rate method ($2 per day, up to $500 in 2022) and the detailed method, where employees tally up the actual expenses incurred and allocate them on a “reasonable basis” to determine the portion related to employment use. This is typically done by dividing the workspace area by the home’s total finished square metres (including hallways, bathrooms, kitchens, etc.).
Expenses include utilities, home internet, rent, maintenance and minor repair costs, and office supplies. You can’t deduct mortgage payments, capital expenses or depreciation (capital cost allowance), and only commissioned-based employees can deduct their property taxes and home insurance.
In my case, the detailed method proved to be the better option, but it meant having to substantiate each and every expense in case the CRA wanted to “review” my return, which is exactly what happened.
In August 2021, I received a “review letter” from the CRA asking for more information about various items on my return, including my claim for the digital news subscription tax credit, proof that I made a small political contribution and, most significantly, support for my work-from-home employment expense claim.
The CRA wanted a copy of my signed T2200, Declaration of Conditions of Employment, and a “detailed breakdown of the amount claimed and the supporting documents.” It also asked for a copy of my T777, Statement of Employment Expenses, and a breakdown of how I calculated the percentage of the expenses I could deduct, and “a copy of the floor plan of the residence with the home office.”
I didn’t have a copy of my home floor plan, but I was pretty conservative with my estimate, claiming less than 10 per cent of my total home expenses for the use of my home office. I prepared a detailed schedule of my monthly hydro, gas and internet expenses, complete with dates and amounts using downloaded information from my online banking.
Unfortunately, this wasn’t enough to justify my claim. My $75 digital news credit and political donation were allowed, but my home-office expenses were denied in their entirety as I apparently did not send sufficiently detailed information to substantiate my claim. This was confirmed in a January 2022 formal reassessment.
I paid the reassessed tax for 2020 to stop the daily compounding of non-deductible, arrears interest from being charged and, in February 2022, filed a formal Notice of Objection. I sent the CRA PDF copies of all my monthly 2020 statements from each utility provider, totalling 89 pages of documentation, to justify my claim. And then I waited. And waited.
Periodically, I would go online to the CRA’s My Account page and check under the Progress Tracker to see if any action had been taken. Finally, after several months, the status was updated online: a preliminary review of my objection was conducted, and it was determined to be of “medium complexity.”
Medium complexity income tax objections resolved in August 2022 were completed in an average of 283 days from the date the objection was submitted. That was too long for me to wait, so I exercised my right to appeal directly to the Tax Court, which can be done 90 days after filing a notice of objection if the CRA hasn’t responded by then.
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In late May 2022, I filed my appeal and was told my case would be heard in Toronto “at the first available opportunity.” I was excited and confident. But other than a couple of parking tickets in the 1990s, I’d never been to court before so I had to prepare. I rewatched 12 Angry Men and My Cousin Vinny. I was now ready for court.
But my day in court was not to be. Shortly after filing my appeal, I got a call from a friendly CRA litigation officer who said he had reviewed my file and was prepared to allow all my work-from-home expenses, save for $99. I quickly agreed.
A week later, he had me sign a consent to judgment, which was later certified by a Tax Court judge. On Sept. 14, I received my new Notice of Reassessment, along with a direct deposit of my tax refund and interest.
I really was looking forward to my day in court. Perhaps another time.
Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com
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