Everyone's Talking About It - Tax Impacts of the Pandemic on Employers and Employees
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Tax Impacts of the Pandemic on Employers and
Employees
January 20, 2021
Everyone’s Talking About It
The COVID-19 pandemic has changed EMPLOYMENT EXPENSES Employer’s declaration
the way work is organized in a number
For salaried employees,1deducting Employees can only deduct expenses if they
of ways. For example, many employers
expenses is the exception. Only those obtain a duly completed and signed form
are requiring employees to work from
expenditures specifically provided for in T2200 – Declaration of Conditions of
home, raising questions about
the Act are permitted, within the limits set Employment (federal) and form TP-64.3 –
deductible expenses for employees
out therein. General Employment Conditions (Québec)
and the treatment of reimbursements,
from their employer for the year in question.
allowances and other benefits that may Employment contract
be provided for this purpose. As well, By signing the form, the employer certifies
this situation creates tax compliance Generally speaking, employees can
that the employee was required to use
obligations for employers. In particular, deduct employment expenses on their
home office space and pay expenses in
the filing of T4 slips in this context income tax return if their employment
this regard, specifying any amounts
raises questions. contract requires them to pay the
reimbursed for such expenses.3
expenses. This employment contract does
Here is a summary of the applicable not have to be in writing, but the employer
rules and relief announced to date, and employee must agree to and
including those for the purpose of understand the terms and conditions.
deducting home office expenses and
with respect to benefits and allowances Accordingly, if there is an agreement
provided by the employer. allowing or obliging an employee to work
from home, the employee will be able to
deduct some expenses, in accordance
with the conditions and within the limits set
out below.2
1 Special rules apply to expenses that may be 2 Employees who voluntarily choose telework, with the 3 Form T2200 / TP-64.3 also allows the employer
deducted by commission employees whose employer's agreement and on terms and conditions to certify other expenses that employees are
employment relates to the sale or negotiation of approved by the employer, will be considered to use required to incur for the purposes of their
contracts for the employer. This document their home for the purposes of employment and to employment (e.g. vehicle expenses).
describes the expenses that are deductible by pay the related expenses under the terms of this
salaried employees; it does not analyze the rules agreement (CRA, Views 2011-0394321E5 and
applicable to self-employed workers Revenu Québec, interpretation letter 19-048516-
(entrepreneurs). 001).
This document is published by Raymond Chabot Grant Thornton for its clients’ information. Readers should not make any decisions on the basis of
this document without first consulting a specialist.
January 20, 2021
Employees are responsible for compiling COVID-19. The online service Access to Revenu Québec stated that the “work
and reporting their employment expenses order prefilled TP-64.3 forms online mainly” at home criterion should generally
and for maintaining records to support service is available to facilitate the be met in the context of the pandemic.10
their claim;4 employers have no production of a large number of forms that
Deductible expenses
responsibility in this respect. employers could have to send to
teleworkers.9 In computing income for a taxation year,
As an administrative practice, the CRA
HOME OFFICE employees may deduct an amount for
and Revenu Québec do not require
home office expenses and supplies
employees to attach form T2200 / TP-64.3 Conditions consumed directly in the performance of
to their income tax return. However,
One of the following conditions must be their duties,11 if their contract of
employees must keep these forms, as well
met for employees to deduct home office employment requires them to pay such
as all records supporting the expenses
expenses: expenses and, where applicable, to obtain
claimed, in order to be able to submit them
such supplies.12
upon request for audit purposes.5 The workspace is where the employee
mainly (more than 50% of the time) They may not receive any reimbursement
Relief for 2020
does work; from their employer in this regard and the
For 2020, two options are available to expenses cannot exceed employment
The employee uses the workspace
employees who worked from home due to income for the year.13
only to earn employment income and
COVID-19: 6
uses it on a regular and continuous Employees using the temporary flat rate
A temporary flat rate method whereby basis to meet clients, or other people method will not have to determine their
employees will be able to claim a in the course of employment duties. expenses eligible for the Home Office
deduction of $2 for each day they Expense Deduction in 2020. They will
Whether employees perform their work
worked from home (max. $400 for the have to calculate these expenses if they
mainly in their home is a question of fact,
year). These employees will not have use the detailed method, and make sure
taking into account all the circumstances
to obtain forms T2200 and TP-64.3 they separate the use of the premises for
of each situation. The common meaning of
from their employer or track their work and non-work (personal) use. For
“mainly” is “more than 50%”. Accordingly,
expenses in detail in order to claim this employees incurring modest expenses,
this condition will generally be satisfied if
simplified deduction;7 the simplified method will normally be
an employee works more than 50% of
The detailed method, for employees advantageous.
normal working hours from home on an
who obtain from their employer the annual basis. Office expenses
completed and signed form T2200 or
the new simplified form T2200S - Relief for 2020 Deductible office expenses include the
Declaration of Conditions of portion of costs associated with
The CRA will consider this condition
Employment for Working at Home Due maintaining an office space, such as
satisfied if the employee has worked from
to COVID-19.8 electricity, heating and maintenance
home more than 50% of the time for a
costs. The utility portion (electricity,
In Quebec, the new 2020 version of the period of at least 4 consecutive weeks in
heating and water) of condo fees is also
TP-64.3 form includes a section allowing 2020 due to the COVID-19 pandemic.
deductible.14
the employer to confirm that the employee
was required to telework due to
4 The record must include supporting documents 7 Revenu Québec confirmed its intention to adopt 11 Expenses paid for the salary of an assistant or
for the expenses (invoices, monthly statements, this simplified method in a press release issued replacement are also deductible if the
etc.). Employees must complete form T777 – on December 16, 2020. employment contract explicitly or implicitly
Statement of employment expenses (form TP-59 8 This relief allows the employer to complete a provides for it.
in Quebec) to claim the deduction of these simplified version of the T2200 form. The 12 A telework arrangement may implicitly require the
expenses, when filing their income tax return. For employee will have to calculate his deduction employee to provide and pay for an office at
the year 2020, a simplified T777S form is using the usual method and keep the supporting home.
available documents to substantiate his claim, whether he 13 Therefore, it is not possible to realize a loss by
5 Generally, taxpayers are required to keep their has obtained the simplified or regular version of deducting home office expenses or deduct these
records and supporting documents (paper or form T2200 from his employer. CRA and Revenu expenses from income other than employment
electronic) for at least six years after the end of Québec will accept electronic signatures for income. Expenses not deducted in a given year
the taxation year to which they relate. T2200, T2200S and TP-64.3 forms in 2020. can be deducted the following year against
6 There is an online calculator on the CRA’s Home 9 See Revenu Québec’s FAQ for Businesses for income from the same employer.
office expenses for employees portal and on the details on employers’ obligations and the 14 Regarding deductible condominium fees, see
Ministère des Finances du Québec site. These applicable terms for producing these forms. note 1 in the "Allowable Expenses" section on the
tools can be used to determine the most 10 See the Revenu Québec’s FAQ for Individuals. No CRA’s Home office expenses for employees
advantageous method for the employee. specific period is mentioned to satisfy this portal and Revenu Québec, interpretation letter
condition. 15-025912-001 (June 2, 2016).
This document is published by Raymond Chabot Grant Thornton for its clients’ information. Readers should not make any decisions on the basis of
this document without first consulting a specialist. Page 24January 20, 2021
If employees own their home, the following telephone service (landline or cell phone) also provide benefits to employees, such
expenses are not deductible as home or unlimited Internet access to be as allowing them to use property for
office expenses:15 “supplies consumed” in the course of personal purposes at no cost. If an
employment.16 employer provides benefits to its
Property taxes;
employees, the employer must determine
Home insurance premiums; In general, these fees will be deductible to
whether the benefit is taxable and, if so,
the extent that they are charged on a per-
Mortgage interest. calculate its value, in order to include it in
use basis. This will include long-distance
the employee's income and make the
Additionally, these employees cannot calls and cell phone minutes that are
relevant withholding.
claim capital cost allowance on the directly attributable to employment.
building or deduct an amount for the rental Allowance
The CRA has indicated that it would
value of the office space.
accept the deduction of expenses for a cell An allowance is an amount paid by an
Employees who rent the home in which phone used exclusively for employment employer to an employee to compensate
the office space is located can deduct the purposes.17 expenses incurred in connection with the
rental costs for the office space. office or employment. There does not
Extended Deduction of Internet
necessarily have to be a relation between
The percentage of deductible home office Expenses
the amount, the nature of the actual
expenses must be determined on a
The list of expenses eligible for the home expenses incurred by the employee and
reasonable basis, such as the area of the
office deduction has been expanded to the allowance received.
office divided by the total finished area of
include reasonable home internet access
the home (including hallways, bathrooms, An allowance to compensate employees
costs.18 Connection fees and modem or
kitchen, etc.). for expenses incurred in connection with
router rental costs are excluded.
their work20 will be considered a taxable
Generally speaking, lighting fixtures (light
GST and QST benefit, whether or not the employee is
bulbs, fluorescent tubes, etc.), cleaning otherwise entitled to deduct expenses in
products and minor repairs (paint and Deductible employment expenses include this regard.
routine maintenance repairs) that apply any GST/HST and QST paid on these
only to the home office space are fully expenses. Expense reimbursement
deductible, unless the space is also used
If the employer is a registrant for GST/HST The amount that the employer reimburses
for other purposes, in which case the
and QST purposes, the employees may an employee for the purchase of supplies
expenses are deductible in proportion to
be entitled to a refund of the taxes paid on used in the course of employment will not
the use made of the space.
taxable expenses that are deductible in be taxable unless the reimbursed
Office supplies computing their employment income.19 expenses have a personal component for
the employee. For example, the
According to the tax authorities, a supply Any reimbursement which employees reimbursement of items such as furniture
is considered to be “consumed” and received in this regard must be added to
and computer equipment would be
therefore deductible as a home office their income in the year in which it is considered a taxable benefit to the
expense if its use destroys its substance received. employee, since the employee will have
or renders it unusable. The supply must
REIMBURSED EXPENSES AND acquired property of a durable nature that
therefore have a finite use such as paper, can be used outside of the duties of
ALLOWANCES
pencils or ink cartridges. However, the employment.
cost of purchasing or renting office An employer may compensate employees
furniture or computer equipment (printer, for expenses related to work, either by Relief due to the pandemic
mouse, keyboard, etc.) is not deductible, paying them an allowance or by In the exceptional context related to
given the reusable nature of these goods. reimbursing them for expenses incurred, COVID-19, the CRA and Revenu Québec
upon presentation of supporting evidence. consider that the reimbursement, upon
Telephone and internet costs
In general, the payment of an allowance or presentation of supporting documents,21
Generally, the tax authorities do not
reimbursement of personal expenses is of up to $500 to offset the cost of acquiring
consider monthly costs for basic personal computer and office equipment
considered a benefit. The employer may
15 Commission employees may deduct a portion of 18 See the list of eligible expenses on the CRA’s Home Application and form VD-358 – Employee QST
insurance premiums and property taxes as a office expenses for employees portal and Revenu Rebate.
home office expense. Self-employed individuals Québec’s FAQ for Individuals. 20 For example, to cover home office expenses or
may be entitled to a wider range of expenses. 19 For GST/HST purposes, the employer must not transportation or parking costs.
16 See in particular Revenu Québec, Interpretation be a listed financial institution. The employee can 21 This relief also applies if the employer pays these
letter 19-046430-001 (September 23, 2019). claim this rebate on his or her income tax return goods directly but it does not apply to allowances
17 CRA, Views Doc 2016-0634351E5 (August 22, using form GST370 – GST/HST Rebate that may be paid for such purposes.
2016).
This document is published by Raymond Chabot Grant Thornton for its clients’ information. Readers should not make any decisions on the basis of
this document without first consulting a specialist. Page 34January 20, 2021
required to enable employees to perform reasonableness of the amounts paid and usage do not have to notify their employer
their duties at home is not a taxable benefit employees are required to keep records of that they wish to use the optional method
to the employee.22 their use of motor vehicles in this context. to determine the operating cost benefit for
2020 and 2021. Their employer must
Expenses covered by the relief AUTOMOBILE BENEFIT
(maximum $500 per employee) determine the benefit using both methods
Generally, the taxable benefit for the use and use the lower amount.
Computer equipment of an employer-supplied automobile
(e.g. printer, monitor) T4 SLIPS
includes a standby charge and a benefit
Office equipment for operating costs.25 New codes for 2020
(e.g. chair, worktable)
Standby charge For the 2020 taxation year, employers will
Transportation and parking be required to use the following new codes
Regular standby charges are 2% per
Expenses related to commuting between to report employment income and
month of the original cost of the vehicle to
employees home and their regular place of retroactive payments made to an
the employer or two-thirds of the lease
employment and parking at that place of employee during the given period in the
payment.
employment are generally considered “Other Information” area at the bottom of
personal expenses. Any reimbursement, The benefit may be reduced if employees the T4 slip:
allowance or other compensation provided use the automobile primarily (more than
code 57: Employment income –
by the employer in this regard is therefore 50% of the time) for business purposes
March 15 to May 9;
usually considered a taxable benefit. and kilometres for personal use are not
more than 1,667 per month (total of 20,004 code 58: Employment income –
Pandemic relief23 kilometres a year). Regular standby May 9 to July 4;
In the exceptional context of the charges will then be adjusted based on code 59: Employment income –
pandemic, allowances to cover the personal-use kilometres. July 5 to August 29;
following costs will not be considered a Operating cost benefit code 60: Employment income –
taxable benefit:24 August 30 to September 26.
Under the general method, the operating
Additional commuting costs incurred cost benefit is $0.28$26 per kilometre for Example: If employment income for the
to minimize the risk of exposure to employees’ personal use. If employees period of April 25 to May 8, 2020 was paid
COVID-19 for employees who are use the vehicle primarily for business on May 14, 2020, the employer must use
required to travel to their regular purposes, before the end of the year, they code 58.
place of employment to perform their can ask their employer to calculate this This requirement applies to all employers,
duties; benefit using the optional method. In this whether or not they have claimed the
Employees commuting costs to travel case, the benefit is equal to 50% of the Canada Emergency Wage Subsidy
to their place of employment to pick standby charge. (CEWS) or another wage subsidy. This
up equipment enabling them to information will be used by CRA to validate
Relief due to the pandemic27
perform their employment duties at Canada Emergency Response Benefit
home. For 2020 and 2021, employees can use (CERB) payments made during these
Similarly, where a regular place of their 2019 usage to determine whether a periods.
employment is closed due to COVID-19, vehicle is used primarily for business
purposes.28 Employees would therefore Don’t hesitate to contact your Raymond
the CRA will not consider an employer-
continue to benefit from the reduced Chabot Grant Thornton consultant who
provided parking space to be available at
standby charge benefit and the optional can help you identify and apply the
that place of employment for use by an
method for the operating cost benefit, as measures applicable to your situation.
employee. Therefore, employer-provided
parking will not result in a taxable benefit. applicable. For more information, visit us at rcgt.com.
Employers are required to keep Employees who qualify for the optional
appropriate records to reflect the method because of their 2019 automobile
22 See the COVID-19 – Employer-provided benefits 24 This relief, effective from March 15 to December 25 For more information on calculating employees’
and allowances section of CRA’s website, where 31, 2020, covers amounts paid or reimbursed by automobile benefit, see the Tax Planning Guide.
it is indicated that this policy applies from March the employer and reasonable allowances to cover 26 Rate for 2020 ($0.27 in 2021).
15 to December 31, 2020. Revenu Québec’s these expenses. It also extends to the use of
position is published in the FAQ for Businesses. employer-provided vehicles for such travel. For
27 See the December 31, 2020 Backgrounder
employees who are required to travel to work to published by Finance Canada and Revenu
23 Revenue Quebec confirmed its intention to Québec’s FAQ for Businesses.
harmonize with these measures during a recent perform their duties, this relief applies if the
meeting with the Tax Executive Institute. employee was not already using an employer- 28 Only employees who have a vehicle provided by
However, as of the date of publication, these provided vehicle to commute to work prior to the the same employer as in 2019 are eligible for this
COVID-19 pandemic. option.
measures have not been published on its website.
This document is published by Raymond Chabot Grant Thornton for its clients’ information. Readers should not make any decisions on the basis of
this document without first consulting a specialist. Page 44You can also read
