The Canada Revenue Agency’s (CRA) shutdown of its EFILE, ReFILE, and T1135 web services signals the onslaught of yet another tax-filing season, and the process has already begun. These popular CRA services were shut down on January 28, 2022, to begin preparations for the 2021 filing season, and are not expected to come back online until February 21, 2022.

While not a lot has changed since the filing of 2020 tax returns, the 2021 returns will be characterized, more than ever before, by the predominance of employer-provided benefits and allowances and home office expenses relating to the COVID-19 lockdowns. Before shutting down its web services, the CRA provided updated guidance on these benefits, allowances and expenses in anticipation that such items will be top of mind for the many taxpayers for whom working from home nearly full time became the norm in 2021.

Deemed non-taxable benefits

Effective from March 15, 2020, to December 31, 2022, the CRA will deem the following allowances or reimbursed expenses paid or incurred related to COVID-19 to be non-taxable benefits for employees under certain circumstances:

• commuting costs;
• parking costs;
• computer equipment costs;
• home office equipment costs;
• overtime meals
• subsidized meals; and
• employment-related cell phone and internet service plans. 

A Baker Tilly advisor can help to clarify whether any of the above allowances and reimbursed expenses should be included on an employee’s T4.

Work from home expenses

Employees who worked from home due to COVID-19 in 2021 may also be eligible to deduct certain home office expenses that were not otherwise reimbursed by their employer. Similar to the eligibility requirements for the 2020 tax year, the requirements for such deductibility for the 2021 tax year remain as follows:

• the employee must have worked more than 50 per cent of the time from home for a period of at least four consecutive weeks in 2021 due to COVID-19; and
• the expenses were directly related to their work.

To claim their work from home expenses, taxpayers must complete Form T777S (Statement of Employment Expenses for Working at Home Due to COVID-19) using either the temporary flat rate method or the detailed method on their 2021 tax returns (the employee may choose the method that is most advantageous). The 2021 temporary flat rate method uses the same base rate of $2 for each day worked from home that applied in the 2020 tax year. However, the maximum deduction has been increased to $500 for the 2021 tax year (the maximum temporary flat rate method deduction had been set at only $400 for the 2020 tax year). Those using the temporary flat rate method are not required to keep or provide supporting documentation.

The detailed method allows taxpayers to claim the total amount paid for work from home expenses, but requires them to retain appropriate supporting documents to back up the deduction claimed in the event the CRA requests this information. Employers must provide Form T2200S (Declaration of Conditions of Employment for Working at Home Due to COVID-19) to taxpayers to allow for the deduction of work from home expenses.

A taxpayer claiming other employee expenses in addition to those incurred strictly as a result of working from home must use Form T777 (Statement of Employment Expenses) and Form T2200 (Declaration of Conditions of Employment). The T777 and T2200 forms for the 2021 tax year, while substantively still similar to the versions used in the 2020 tax year, have been subject to a few minor updates.  

A Baker Tilly tax advisor will be able to compare the two methods for claiming employee expense deductions to determine the most advantageous outcome based on each employee’s tax situation.

Electronic T2200S (Declaration of Conditions of Employment for Working at Home Due to COVID-19)

On January 19, 2022, the CRA announced the option for employers to develop their own Form T2200S that will automatically generate the employee information, conditions of employment and employer declaration applicable for the 2020 and 2021 tax years. The employer-generated Form T2200S must meet the following requirements:

• it must be made available to employees in a format that CRA representatives can read;
• it must be completed in full before being given to the employee (Part A, Part B and the employer declaration);
• it must mirror the CRA paper version of Form T2200S;
• it must be in an immutable format that cannot be altered; and
• it must meet all of the CRA's general guidelines on record retention and electronic records (all of which can be found in information circular IC78-10R (Books and Records Retention/Destruction)).

While there seems to be light at the end of the tunnel for the gradual return to work normalcy, the deductibility of these work from home expenses has been extended until December 31, 2022, so taxpayers should continue tracking days worked at home because of COVID-19, and should maintain relevant expense invoices, for the remainder of the year.

Contact your Baker Tilly advisor for more information and guidance.