On April 22, 2020, the Canada Revenue Agency (“CRA”) indicated that it would allow special favorable tax treatment to employees working from home during the COVID-19 crisis.[1]
In particular, the CRA will accept that the reimbursement of an employee, for amounts spent on personal computer equipment to enable the employee to work from home, mainly benefits the employer. As a result, the reimbursed amount will not be a taxable benefit to the employee. This relief is to apply for amounts up to $500 and only in respect of amounts for which the employee provides receipts.
In the normal course, an employer can provide an employee with an allowance for home office expenses, which is a taxable benefit for the employee.[2] Alternatively, the employer can decide to reimburse an employee expense upon presentation of an invoice, in which case the reimbursement will be a taxable benefit if it primarily benefits the employee rather than the employer.[3] Usually if an employee receives a reimbursement for home office equipment, it is characterized as a personal expense, primarily for the employee’s benefit, and therefore a taxable benefit.
The CRA’s announcement does not change
the tax consequences for employers. An
employer providing an employee with reimbursements for home office expenses,
even certain capital expenses such as the acquisition of tools, will normally
be entitled to deduct the full amount of the reimbursements as a business
expense, provided the amount is reasonable in the circumstances.[4]
[1] CRA Views 2020-0845431C6: Taxable benefit – telework / Taxable benefit – Section 6 (1) a), 6 (1) b), April 22, 2020.
[2] See CRA Interpretation, 2011-0402581I7 — Allowance for workspace in the home, July 12, 2011. See also, CRA, Interpretation Bulletin, IT-352R2 — Employee’s Expenses, Including Work Space in Home Expenses, August 26, 1994.
[3] See CRA, Tech Interp, 1999-0013955 — Construction and expenses — workspace, February 3, 2000.
[4] Ibid.