Is my home office tax-deductible?

At the beginning of 2021, 32% of Canadian employees aged 15 to 69 worked most of their hours from home, according to Statistics Canada. This is almost a year after workers were sent home with backpacks full of monitors to find a suitable backdrop in their living room for video calls.

Now that a large portion of the country is working from home at least part of the time and has had some time to adjust, a home office has become the norm. If your company fronted some of the cost for your set-up, lucky you. Whether they did or not, though, you may still be able to take advantage of your new office space come tax time. That’s right, if you keep your receipts, you could be able to deduct some of your office expenses from your taxable income.

To answer the larger question of whether or not your home office is tax-deductible, you first have to answer a few questions, as there are different rules for business owners who work from home and employees who work from home.

Before we jump in…

Tax laws are frequently changing, and given the unprecedented year 2020 was, the Canadian Revenue Agency (CRA) made temporary changes to tax regulations including deductions for home office expenses. While remote workers could take advantage of these deductions on their 2020 tax returns, there’s no saying whether or not the same will be true for 2021 tax returns. However, considering many people are still working from home and will continue to do so, we anticipate a more permanent place on the tax form for home office expense deductions.

Are you a business owner working from home?

Perhaps the only thing that has more moving parts than filing taxes is running a small business. So, what happens when the time comes to file a tax return for those of you who are entrepreneurs or freelancers? While a big headache may begin to pound, it doesn’t have to. We’ll help alleviate some of the pressure that comes with juggling your complicated tax return while trying to run your business by showing you all the ways you can save $$$ by deducting expenses from your income. Let’s dive in.

The business use of home tax deduction

In order to deduct your home office expenses from your income, your home office has to be your primary place of work, meaning you work there more than 50% of the time, and the space needs to be used solely for business income. So, while working from your dining table may mean you don’t have to invest in a desk, you can’t deduct the expenses in your dining room as home office expenses.

If you meet these qualifications, you can then deduct a portion of almost all of your home expenses including rent, property insurance, property taxes, mortgage interest, utilities, such as heat and light, and phone and internet services. You can even deduct things like cleaning supplies and maintenance costs. For help calculating what portion of these expenses you can deduct, check out these ideas, and for a detailed description of what you can and can’t deduct, be sure to scroll through the Income Tax Folio.

Are you an employee working from home?

Even if you don’t run your own business, you could be paying more taxes than necessary if you work from home. Things such as utilities, cell phone plans, and even rent can all be tax-deductible. These are called “work-space-in-the-home expenses.” There are a couple of caveats though; you can only deduct expenses for periods of time when you worked from your home i.e. If you went back to the office in July, you would only be able to deduct WFH expenses for the months you worked from home from January to July. The expenses you deduct also can’t exceed your employment income, and you can only deduct them from the stream of income that you earn while working from home, not from another source of income.

If you follow the rules, though, when you deduct the appropriate expenses, you can lower your taxable income by a significant amount and save yourself quite a bit of change.

Expenses you can deduct:

If you choose to use the detailed method to deduct home office expenses, the CRA says, “you must separate the expenses between your employment use and non-employment (personal) use of your home.” Keep this in mind as you go through this list:

1. Internet

Use the government calculator to determine how much of your internet usage, and thus, how much of the bill can be attributed to work use. Then, deduct that amount by listing it under “other expenses” on line 9270 of the T777 or T777S forms.

2. Phone

Your cell phone service (not the actual phone) may also be deductible if: 1. the cost of the plan is reasonable, 2. the cost of the plan has been reasonably apportioned between employment and personal use, and 3. you are able to show the cellular minutes or data you consumed directly while performing your employment duties as well as the cost of the minutes or data.

3. Utilities

A portion of your utilities such as heat, electricity, and water can be deducted as work-in-home expenses too. If you live in a condo, the utilities portion of your fees can be deducted as well.   

4. Minor maintenance and repairs

When you were sent home to work, did you pay to have new outlets installed or purchase light bulbs and shades for your home office? All of these costs can be deducted as work-space-in-home expenses.

5. Rent

Yes, even the rent you pay to live in a house or apartment can be deducted as an expense if you work from home.

6. Office supplies

There are actually many rules surrounding which office supplies you can deduct and which you can’t, so we recommend reviewing the list before assuming anything you purchase for your home office space is deductible. Things such as highlighters and sticky notes are deductible while laptops and laptop stands are not. How does the CRA determine what is and isn’t deductible, you may be wondering? The item must be able to be “used up” while directly performing your job.

7. If you’re a commission employee…

If you’re a commission employee who works from home, meaning you sell goods or services or negotiate contracts, you can deduct your home insurance, property taxes, and lease of a cell phone, computer, laptop, tablet, fax machine, or other devices that reasonably relate to earning commission income. This is in addition to all of the other expenses listed above.

Expenses you can't deduct:

The list of home office expenses that are tax-deductible isn’t stingy, and can have a significant impact on your bottom line, but don’t go writing off everything in your workspace just yet. These are the things you can’t deduct:

1. Office or computer equipment

It may seem surprising but the office or computer equipment required to do your job is not tax-deductible. This includes your chair, monitor, desk, cases, and the likes.

2. Mortgage payments

Neither the principal nor the interest payments on your mortgage can be deducted as work-from-home expenses. Yes, even though you are using your home as your office.

3. Furnishings

Furnishings such as furniture and wall decor are also not tax-deductible. So pause before you go purchasing new art and a cozy couch to freshen up your home office.

4. Major repairs or renovations

While minor repairs in your home office are tax-deductible, anything that would enhance the value of your home, such as repairs to the windows or floors is not.

5. Expenses your employer reimbursed you for

According to the CRA, you cannot claim any expenses that were or will be reimbursed by your employer. However, if you had expenses that exceeded what you were reimbursed for, you can claim the amount that wasn’t reimbursed as an expense, if it falls under what is tax-deductible.

The temporary flat-rate method

If deducting every last expense, from the internet that supports your zoom calls to the pen you use to take notes with, feels a bit overwhelming, you can choose to use the temporary flat rate method for calculating home office deductions. This method was introduced due to the pandemic and enabled employees who worked from home to be able to deduct $2 for each day they worked at home due to COVID-19, up to $400. It’s not yet clear if the government will extend this method of deducting expenses for 2021.

You can’t use this method or the detailed method, however, if you aren’t the one paying for expenses (for example, if you’re living at your parents’ home and they’re footing the bill, or if your company is fronting the costs of your home office).

As we mentioned at the start, tax laws are always changing, and the rules around 2021 tax returns may look very different from those that were put in place for 2020 tax returns. Stay informed by visiting the CRA’s website and don’t be afraid to hire a tax professional when tax time rolls around to help you maximize your deductions.