Does Canada Have a Work-From-Home Tax Credit?
As another tax season approaches, many part- or full-time remote employees may be asking whether Canada has a tax credit for working from home.
The short answer is yes: If you are a salaried or commissioned employee, your home office expenses can help reduce your taxable income, and your tax bill.
The full answer includes a few different conditions and caveats around how this particular tax benefit works, how to qualify for it, and how much you might receive.
What is the work-from-home tax credit?
Technically, the tax benefit you can get for working from home isn’t a tax credit at all, it’s a tax deduction. The difference is subtle, but important. Tax credits directly reduce the amount of tax you owe; tax deductions reduce your taxable income.
If you incurred certain expenses while working from home for an employer, you may be able to claim those expenses on your tax return and end up with a smaller tax bill.
If you run your own small business or do freelance work from home, you’ll want to investigate Canada’s business-use-of-home tax credits and deductions instead. The working-from-home tax credit is only for salaried or commissioned employees who work from home — it does not apply to work-related expenses that you can deduct as a self-employed individual.
The temporary flat rate method is over
In response to the COVID-19 pandemic, the Government of Canada established a simplified method to claim the work-from-home deduction for the 2020 tax year that then extended to the 2021 and 2022 tax years. It does not apply to 2023 and beyond.
The simplified system didn’t require you to keep supporting documents to claim a per-day flat rate up to $400. Your employer also didn’t have to complete and sign Form T2200S or T2200. As of the 2023 tax year, the detailed method is required to claim the deduction.
Eligibility for work-from-home tax relief
The only way to claim the working-from-home tax credit is to use the detailed method. To use it, you must meet all of the following conditions:
Your employer required you to work from home (via written or verbal agreement).
You paid expenses related to your home work space.
You spent more than 50% of your work time in your at-home work space for a minimum of four consecutive weeks in the year OR your at-home work space is only used to earn employment income (to include meeting with clients, customers or colleagues).
The expenses you incurred are directly related to the work you do.
You have a completed and signed copy of Form T2200, Declaration of Conditions of Employment, from your employer.
How to claim the work-from-home tax deduction
For the detailed method, you’ll need to complete Form T777. Additionally, you’ll need to get a completed and signed Form T2200 from your employer, and to have kept records of your work-related expenses in case you get audited.
If you’re filing your tax return by hand, you’ll need to locate the necessary forms on the Government of Canada website. If working with a tax preparation professional or DIY tax software, all necessary forms should be provided for you.
Deductions for self-employed individuals
Self-employed individuals and freelancers who use their home for business cannot claim the work-from-home deduction. They can, however, deduct some business-use-of-home expenses on Line 9945 to reduce their taxable income.
To be eligible, your home must be your primary place of business or you must use it regularly to meet with clients, customers or patients.
Eligible individuals can deduct a portion of maintenance and utility costs, mortgage interest, property taxes and capital cost allowance (CCA). The deductible amount is calculated based on the percentage of the area of home use for work.
If you use part of your home for living and business (for instance, you run a daycare from your living room), you will calculate the percentage of the day you use your space for business, and then multiply that by the business portion of your total home expenses to determine how much you can deduct.
Frequently asked questions
Is the work-from-home provision a tax credit or tax deduction?
Is the work-from-home provision a tax credit or tax deduction?
It’s a tax deduction. Tax credits directly reduce the amount of tax you owe; tax deductions reduce your taxable income.
How much is the work-from-home tax deduction?
How much is the work-from-home tax deduction?
The amount you can deduct will depend in part on the size of your at-home workspace. And you will use the detailed method to claim expenses.
The temporary flat-rate method of deducting up to $400 for home office expenses was applicable only for the 2020-2022 tax years — and it is no longer available.
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