2021 Tax Guide: How to Claim Your Home Office and Utilities

black woman in yellow shirt sitting at desk with laptop doing tax paperwork

Last year was an interesting one when it came to employment norms. People accustomed to commuting to an office or workplace every day were offered the opportunity to work from home.

Likewise, many people also decided to start their own businesses at home.

If you fall into either of these categories, your situation drastically changes the way in which you will file your 2020 taxes.

Instead of plugging in your T4’s and calling it a day, you now have to consider your home office expenses and what you can claim as deductions on your taxes.

The process is fairly straightforward and includes only a simple calculation to determine eligible deductions amount.

However, knowing what expenses you can claim can be a bit trickier.

Before we explore how to claim your home office and utilities, here is some information on whether or not you are eligible:

Are You Eligible to Claim Home Office Expenses?

Self-employed individuals and employees who worked from home more than 50% (over a period of at least four weeks) due to the pandemic can claim home office expenses.

These expenses range from office supplies to internet services and rent/mortgage.

Not all work-from-home jobs are created equal. For instance, if you work for yourself you can claim more deductions than someone who is employed and working from home.

What you can claim as an employee may seem convoluted since the CRA has implemented new regulations to accommodate the increase in work-from-home individuals due to COVID-19.

If you need clarification about what you are eligible to claim as an employee or self-employed individual, feel free to contact our team of knowledgeable accountants for more information.

Claiming Home Office Expenses: Self-Employed

For those who are self-employed, you can claim your home office if your workspace is your main place of business or is used to regularly meet with clients, customers or patients.

By comparing the space of your home office to the space of your home to calculate a percentage, you can claim a portion of your household expenses.

For example, if your home office is 200 square feet and your home is 2500 square feet, you would divide the office by the home and get a percentage of 8%. That means you can claim 8% of your household expenses.

These expenses include:

  • Telephone
  • Utilities (heat, electricity, water, etc.)
  • Internet
  • Rent/Mortgage
  • Property taxes
  • Maintenance and repairs
  • Insurance
  • Mortgage interest

You can also deduct expenses related to your home office such as office supplies (pens, pencils, ink, etc.).

Be sure not to deduct equipment such as chairs, desks and computers – these are considered capital expenses.

Claiming Home Office Expenses: Employed

Computer programmer writing program code on computer in home office

When you are working at home as an employee, you can only claim your home office if you use your home office exclusively for work or you use the space to complete more than 50% of your work.

In order to qualify as an employee, your employer must require you to maintain a home office as part of your contract of employment.

Also, you cannot claim any expenses that have been reimbursed by your employer.

Lastly, your employer must fill out and sign form T2200 (Declaration of Conditions of Employment).

Once you determine that you do qualify to claim your home office as an employee, you can calculate your claim percentage:

Divide the square footage of your office space by the square footage of your home.

You can use this percentage to determine the portion of your home expenses and utilities that you can claim on your taxes.

These expenses include:

  • Telephone
  • Utilities (heat, electricity, water, etc.)
  • Internet
  • Rent/Mortgage
  • Property taxes
  • Maintenance and repairs

Unlike self-employed individuals, employed workers cannot claim mortgage interest or insurances.

Instead of calculating your home office expenses, the CRA has introduced a new “temporary flat rate method” which allows you to claim $2 per day that you worked at home up to a maximum of $400.

These days only include days worked and not vacation, sick or absent days.

This method is preferred if you only worked from home temporarily.

Otherwise, if you feel you are eligible for more than $400 in deductions, you’ll want to use the percentage mentioned above to calculate your claims.

Common Mistakes When Claiming Home Office Expenses

You have to be very careful when claiming home office expenses so that you don’t trigger an audit by the CRA.

Don’t make the mistake of claiming full expenses related to your home. You need to calculate the percentage and only claim the appropriate portion.

Also, when claiming repairs and maintenance, these costs only apply to your home office. You cannot claim repairs made to other areas of your home.

Be vigilant when claiming your home office expenses. Rounding up the costs can prompt the CRA to take a closer look at your tax return.

You should also break down your home office into different categories. Inputting large numbers in one category could also cause the CRA to question your return.

The CRA’s new “temporary flat method” eliminates the need to track expenses but if you need to calculate the percentage of your space to maximize your return, it’s best to hang on to your receipts.

By following the above tips, you can safely claim your home office and utilities without worrying about facing an audit.

Let Us Help You With Your Tax Return!

To better protect yourself against a CRA audit, why not let the experts take care of your tax return?

Our team at Liu & Associates can ensure that your taxes are filed properly while including all eligible deductions to maximize your return.

There are definitely financial perks to working from home – and we want to help you explore them all!

Let’s chat today!