What you need to know if the CRA reviews your home office expense claims


Jamie Golombek shares his private expertise of what the CRA requested him to ship them to justify his deduction

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On the Tuesday after the August lengthy weekend, on the ungodly hour of 1:19 AM, I obtained an e-mail with the ominous topic line: “New mail from the Canada Income Company.” That is hardly ever excellent news.

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Sure, the CRA was, because it appears to do annually, making ready to conduct a “overview” of assorted line gadgets from my 2020 private tax return. Because the six-page, single-spaced computer-generated kind letter defined: “We often overview returns after sending out the discover of evaluation. These critiques are an essential a part of the self-assessment tax system. We want to verify that we assessed your return accurately and wish extra details about the declare(s) proven beneath.”

Particularly, the CRA needs extra details about varied, apparently suspicious, gadgets on my return, together with my declare for the brand new $75 digital information subscription tax credit score, proof that I made a small political contribution and, most importantly, my declare for employment bills, particularly, these referring to the workspace in my dwelling.

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I’ve been working from dwelling because of the COVID-19 lockdown since March 13, 2020, which is when my Bay Road workplace was successfully shuttered. Within the months since then, the lease time period on my workplace expired and we had been supposed to maneuver to new premises final August, however such a transfer has been deferred till at the very least the autumn. In consequence, for the primary time in my life, I claimed some dwelling workplace bills on my return, which was apparently adequate to set off a CRA overview.

Within the spirit of sharing, and in case you end up going through an analogous overview, let’s have a look at the house workplace expense guidelines and what the CRA has requested me to ship them to justify my deduction. We’ll additionally take a glimpse into the way forward for the house workplace expense deduction, and what modifications one tax lawyer want to see, as expressed in a newly printed paper on the topic.

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The house workplace expense deduction

Underneath the Earnings Tax Act, an worker who’s required to pay for employment bills for which they aren’t reimbursed by their employer, together with bills for a house workplace, could possibly declare a deduction on their return for such bills. For a sound declare, the worker should usually receive from their employer a correctly accomplished and signed Canada Income Company Kind T2200, Declaration of Circumstances of Employment.

To be entitled to deduct dwelling workplace bills, an worker should be “required by the contract of employment” to keep up such an workplace, as licensed by the employer on the T2200. For the 2020 tax yr, the CRA said the requirement to work from home could possibly be happy if there was a verbal or written settlement that the worker was working from dwelling because of the pandemic. It should even be both the place you “principally” (greater than 50 per cent of the time) carry out your duties of employment or the area should be completely used to fulfill prospects on a daily and steady foundation in the middle of employment.

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The CRA overview letter

In my overview letter — below the heading: Line 22900 of the tax return, (Employment bills) — the CRA requested me for a wide range of info. First, it requested for a replica of my Kind T2200, reminding me to guarantee that it was signed by my employer.

The CRA then requested for a “detailed breakdown of the quantity claimed and the supporting paperwork,” noting that “credit-card statements, financial institution statements and cheques by themselves don’t give sufficient info to help a declare.” It requested me to make certain that the receipts and paperwork are “sorted, bundled, and labelled based on the expense claimed.”

The CRA additionally requested for a replica of Kind T777, Assertion of Employment Bills, together with receipts and paperwork to help the bills claimed for workplace provides (postage, stationery, ink cartridge, and so on.), different bills reminiscent of employment use of a cellphone and work-space-in-the-home bills.

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For cellphone bills, the CRA needs a replica of the cell contract, copies of the detailed month-to-month account summaries or related statements, proof of fee and “a breakdown of the minutes and knowledge used to earn employment earnings.”

For my work-space-in-the-home bills, the CRA is asking for a breakdown of how these bills had been calculated, the calculation I used to find out the share of those bills I can deduct — indicating the variety of sq. ft (or metres) — used for employment functions, the quantity used for private functions, and “a replica of the ground plan of the residence with the house workplace.”

Way forward for dwelling workplace bills

In a brand new paper printed this week within the Canadian Tax Journal, tax lawyer Bhuvana Rai of EY Regulation LLP, reviewed each the present and historic tax schemes for deducting employment bills, notably these related to a house workplace. She concluded that the present authorized check for these deductions is “inequitable, ineffective, and imprecise,” and, after totally canvassing what different international locations do on this space, proposed a wide range of modifications for the federal government to think about.

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For instance, to eradicate the executive burden of getting to trace (after which submit) quite a few receipts of legitimate employment bills, Rai instructed that Canada may revert to the Royal (Carter) Fee on Taxation’s authentic advice to take care of the “sensible administrative difficulties of itemized employment bills for workers.” The fee’s authentic proposal was to permit staff to say an optionally available deduction of three per cent of employment earnings, as much as a most of $500 (which might be equal to about $4,000 in 2021 {dollars}), in lieu of an itemized employment expense deduction.

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One other suggestion put forth within the paper is to eradicate the requirement for workers to acquire a signed T2200 from their employer, noting that “this requirement is an administrative burden that creates anxiousness about legal responsibility for employers and presents them no actual profit. In consequence, employers are typically overly conservative in certifying that their staff qualify for the expense deduction.” Underneath the present system, Rai added, “staff with the least bargaining energy are most definitely to be affected by this requirement, and least capable of advocate for themselves with an unwilling employer.”

Jamie.Golombek@cibc.com

Jamie Golombek, CPA, CA, CFP, CLU, TEP is the managing director, Tax & Property Planning with CIBC Personal Wealth Administration in Toronto.

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