February 9, 2024
Canada Revenue Agency provides additional guidance on home office expenses for 2023
On 2 February 2024, the Canada Revenue Agency (CRA) updated its website to provide much-anticipated guidance on the process for employees to claim home office expenses for the 2023 tax year. Notably, this new guidance indicates that, for 2023, the CRA has adopted a broad interpretation of situations in which an employee is required to work from home, which is one of the eligibility criteria for claiming home office expenses.
The latest guidance supplements information that the CRA provided in a December 2023 news release and in Guide T4044, Employment Expenses 2023. For more information on the details previously announced by the CRA regarding home office expenses, see EY Tax Alert 2024 Issue No. 1, CRA provides guidance on home office expenses for 2023.
This Tax Alert provides a brief overview of the CRA's latest guidance with respect to claiming home office expenses for 2023, with a focus on the implications for employers.
The Income Tax Act provides that employees are not able to claim certain deductions against employment income, including home office expenses, unless they have a form from their employer confirming that the conditions for the deduction have been satisfied. Form T2200, Declaration of Conditions of Employment, has traditionally served this purpose.
Due to the number of employees working from home during the COVID-19 pandemic, the CRA made available two alternative methods for employees to claim home office expenses for the 2020, 2021 and 2022 tax years:
In December 2023, the CRA confirmed that the temporary flat-rate method does not apply for the 2023 tax year. Therefore, employees must use the detailed method and obtain a completed Form T2200, reviewed and signed by their employers, to claim home office expenses for 2023.
In January 2024, the CRA published an updated version of Form T2200 for the 2023 tax year. The updated Form T2200 is designed to be easier for employers to complete if the employee is only seeking to claim a deduction for home office expenses. For 2023 and later years, employers are not required to provide a handwritten signature on Form T2200; the CRA will accept an electronic signature on this form.
The CRA has provided the following additional guidance on the process for claiming home office expenses for the 2023 tax year:
This Tax Alert focuses on the criteria for employees to claim home office expenses for federal income tax purposes for the 2023 tax year. As noted in EY Tax Alert 2024 Issue No. 1, consistent with the federal rules, the flat-rate method will not apply for Québec provincial income tax purposes for 2023.
To date, Revenu Québec has not published guidance on the process for claiming home office expenses for 2023. In particular, it remains unclear whether, for Québec provincial income tax purposes for 2023: (i) an employee who enters into a voluntary work-from-home arrangement would meet the criteria of being required to maintain a home office; and (ii) an employee would have to work from home more than 50% of the whole year to claim home office expenses, or whether the test could be met over a shorter period (e.g., four consecutive weeks).
Hybrid and remote work arrangements continue to be prevalent since the COVID-19 pandemic. At least for 2023, the CRA has indicated that employees who voluntarily initiate work-from-home arrangements can potentially qualify to deduct eligible home office expenses. This position, coupled with the elimination of the temporary flat-rate method, will likely lead to an increase in employee requests to issue Form T2200 within a short period of time.
The leading practice has traditionally been to issue Form T2200 around the time of issuance of Form T4, Statement of Remuneration Paid. Given the late release of this additional guidance from the CRA, it is reasonable to assume that it will take some time and effort before Form T2200 can be provided to eligible employees. As such, employee expectations will likely need to be managed and reasonable timeframes should be provided proactively.
EY has developed a technology-enabled solution to ease the potential administrative burden of completing Form T2200 for employers. This solution has been refreshed to accommodate the CRA's guidance on the process for claiming home office expenses for 2023.