Does Canada Have a Working-from-Home Tax Credit?

Does Canada have a working-from-home tax credit? That’s a question many Canadians may be asking as they prepare for tax season. Some suddenly found themselves working at home when employers required a shift to remote work during the COVID-19 pandemic, while others may have started new jobs that will allow them to work from home indefinitely.

While the short answer to this question is yes, the longer version involves a few different conditions and caveats. Read on to learn how the work-from-home tax credit works, how to qualify for it, and how much you might get if you do.

» MORE: What is a tax credit?

What is the working-from-home tax credit?

First off, let’s clarify one thing: the tax benefit you can get for working from home isn’t technically a tax credit — it’s a tax deduction. The difference is subtle, but important. While tax credits directly reduce the amount of tax you owe, tax deductions reduce your taxable income.

If you work for an employer from home, you’re generally allowed to claim the cost of home office expenses to help reduce your taxable income, which may result in a smaller income tax bill.

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. The method has since been extended to cover the 2021 tax year.

The simplified system doesn’t require you to keep supporting documents. Your employer also doesn’t have to complete and sign From T2200S or T2200. Basically, you can claim $2 for each day you worked at home in 2021 due to the COVID-19 pandemic. There’s a cap of $500, which covers 250 working days.

Nerd Tip: The new working-from-home tax credit is only for employees who work from home — it’s separate from work-related expenses that you can deduct as a self-employed individual. 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.

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Eligibility for work-from-home tax relief

The easiest way to claim the working-from-home tax credit is to use the temporary flat rate method. To do so, you must meet all of the following conditions:

• You worked from home in 2021 due to the pandemic.
• You worked from home more than 50% of the time for at least four consecutive weeks in 2021.
• You’re only claiming home office expenses and not any other employment expenses.
• Your employer did not reimburse you for all of your home office expenses.

If you prefer, you can choose to use the detailed method, which allows you to claim additional expenses such as portions of your utility bills, internet and rent. People who worked from home before the pandemic used this method and may continue to do so. You must meet all of the following conditions to qualify:

• You worked from home in 2021 due to the pandemic or your employer required you to work from home.
• You were required to pay for expenses related to the work space in your home.
• You worked more than 50% of the time in your work space for at least four consecutive weeks, or you only use your work space to earn employment income.
• Your expenses are directly tied to your work.
• You have a completed and signed copy of Form T2200S or T2200.

» MORE: How to file a tax return

What counts as a work day?

The government is particular about what it considers to be a work day, but luckily the criteria are fairly clear. Only days on which you worked either part-time or full-time hours for your employer from home would qualify.

That means the following types of days don’t count as work days:

• Days off (scheduled or unscheduled)
• Vacation days
• Sick days
• Other leaves of absence

What counts as a work space?

If you’re using the temporary flat rate method, there’s no need to determine the size of your work space. You’ll simply claim $2 for each work day (using the definitions above), up to a maximum of $500. However, if you’re going the detailed method route, you’ll need to figure out the size of your work space to claim your expenses.

First, calculate the overall size of your home, including all finished areas such as hallways, bathrooms, and your kitchen. Then, measure your work space relative to your overall space. For example, if your apartment is 1,000 square feet and you work in an office measuring 10 feet by 10 feet, your work space is 10% of your home. You’ll then be able to deduct that portion of certain expenses related to working from home.

Your work space doesn’t need to be a formal desk or designated room. If you use your kitchen counter or the family computer to do your work, it would still qualify as a work space. Simply measure the area that you use for work.

How to claim the working-from-home tax deduction

When you file your taxes, you can choose to use the temporary flat rate method or the detailed method.

If you use the temporary flat rate method, you’d fill out Form T777S – Statement of Employment Expenses for Working at Home Due to COVID-19.

For the detailed method, you’d complete Form T777S or T777. Remember, if you choose the detailed method, you’ll need to keep records of your work-related expenses in case you get audited.

Your tax preparation professional will have all of these forms, and they’re included if you file your tax return using tax prep software. If you’re doing your taxes by hand, you’ll need to locate the necessary forms on the Government of Canada website.