This article was first published by the Canadian Tax Foundation in  Canadian Tax Focus, May 2020.

Although tight rules in subsection 8(13) make it difficult for employees to deduct their COVID-19-related home office expenses, planning for the possibility of such deductions could begin. Employers should consider concluding agreements with employees about the requirement to have a home office and planning for the possibility of needing to issue large numbers of form T 2200, "Declaration of Conditions of Employment." Some employers, wary of the costs involved, may choose instead to reimburse employees for a modest amount of office supplies. The CRA accepts that reimbursement of an amount not exceeding $500 for the purchase of personal computer equipment will be non-taxable in the COVID-19 context (CRA document no. 2020-0845431C6, April 22, 2020 [French only]). Further CRA guidance may be expected, and there is a strong possibility that additional rules will be relaxed.

Home office expenses may be deductible to an employee under either paragraph 8(1)(f) or (i), each of which has its own tests. Subsection 8(13) provides additional requirements.

The CRA considers (in CRA document nos. 2000-0022015, May 17, 2000 and 2011-0394321E5, March 1, 2011) that a work-from-home arrangement may be initially entered into voluntarily and formalized later; once the agreement or unilateral notice (which need not be in writing) is in place, the employee can be considered to be "required" (for the purposes of paragraph 8(1)(f) or (i)) to provide the home workspace and incur the expenses. Since it is not clear whether the concluding of a formal arrangement is considered to back-date the requirement to the time that it started informally, such agreements should be concluded soon.

Subparagraph 8(13)(a)(ii) requires that the workspace be used exclusively for the purpose of earning employment income and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the employment duties. Since the CRA's opinion has been that "meeting" means a physical encounter (that is, in person) (CRA document no. 2013-0481171E5, December 10, 2013), the physical distancing requirements recommended by governments seem to make this test impossible to meet. Informal-procedure TCC decisions to the contrary (for example, Landry v. The Queen, 2007 TCC 383) have not changed this policy.

An alternative route to deductibility is subparagraph 8(13)(a)(i), which requires that the workspace at home be where the employee "principally" performs the duties of the office or employment. The CRA's view is that, in this context, "principally" means more than 50 percent of the time. In the context of temporary mandatory work-from-home policies, a question arises as to whether the 50 percent threshold is computed over the course of a full year or a part of the year. Since subsection 8(1) refers to "computing a taxpayer's income for a taxation year from an office or employment," it would be reasonable to infer that the "principally" test should be determined over the course of the full period of employment in the calendar year, rather than for just the part of the year during which the employee is required to work from home for that employment. This would imply that for a 12-month period of employment in which the person works either fully from home or not at all from home for any given month, the work-from-home policy would have to be in place for at least 6 months in order to meet the test.

The CRA has previously opined (CRA document no. 2007-0227511E5, December 13, 2007) that when determining the appropriate "total hours" in the application of the "principally" test, it would be reasonable to begin with the number of hours that the employee is required to work under the terms of his or her employment contract. As such, various considerations would have an impact on this calculation, including whether an employer approves overtime or different working hours, or whether an employee's working hours are stable throughout the year. For example, certain industries' business cycles may fluctuate, be seasonal, or be project-oriented, with the majority of working hours being compressed into a few months. Thus, the 50 percent threshold could be met in less than 6 months.

An alternative view is that it is sufficient to meet the 50 percent threshold for just a few months rather than the whole of the employment in the year. Policy intent is one factor in statutory interpretation, and the above-cited words in subsection 8(1) are unlikely to have been written in contemplation of a pandemic.