CRA: How Much Can You Claim With the Work-From-Home Tax Break in 2020?

The pandemic gave rise to the work-from-home culture. You can monetize this trend by claiming this CRA tax break in 2020.

The 2020 tax year is coming to an end, and you don’t want to get a nasty surprise of a high tax bill in April 2021. It is time you start learning about the various tax breaks the Canada Revenue Agency (CRA) offers. With millions of Canadians working from home as a result of the COVID-19 pandemic, you can leverage the CRA’s workspace-in-the-home tax break.

Data from Statistics Canada revealed that five million people worked mostly from home in April 2020, when the pandemic hit its peak. This work-from-home culture increased expenses such as electricity, heating, stationery, and maintenance. If you also brought work home, grab this opportunity and another tax break to your list.

How does workspace-in-the-home tax break work?

You can claim a tax break on the additional expenses that you have paid to operate a workspace from home. These are the expenses you incurred as a result of the pandemic-driven lockdown. If you get a reimbursement for these additional expenses from your employer, you are not eligible for the workspace-in-the-home tax break.

You can apply for this tax break if you meet one of the following two conditions:

  • If you spend more than 50% of the time working from home.
  • If you use the home-workspace only for work and to regularly meet clients, customers, and other work-related people.

Your employer needs to fill and sign a T2200 form for every employee that it has asked to work from home. You should keep a signed copy of the form to show to the CRA.

Which workspace-in-the-home expenses can you deduct from 2020 taxable income?

Let me explain how you can benefit from the workspace-in-the-home tax break through an example. Kevin is a financial consultant and lives in a rented two-room apartment spanning 1,000 square feet in Toronto. He has a taxable income of $40,000. He uses 150 square feet of the space in his house for work, so he can deduct 15% of all his expenses under the workspace-in-the-home tax break.

Since he lives in a rented apartment, he can deduct the rent for the area he uses as his workspace. Now, his electricity bill comes to $2,000, maintenance expense $1,500, and heating cost $500. Also, he pays $10,000 as rent.

He can deduct 15% of these expenses from his taxable income. These expenses add up to $14,000, and Kevin can claim workspace-in-the-home tax break of $2,100 (15% x $14,000). Now, his taxable income amounts to $37,900 ($40,000- $2,100). Note that Kevin can’t deduct more than $40,000 in workspace-in-the-home expenses and show a loss. If his expenses do exceed his income,  he can carry forward these expenses to next year provided he is still working from home and for the same employer.

According to the CRA, the federal tax rate for 2020 is 15% on the first $48,535 of the taxable income. This workspace-in-the-home tax break reduced Kevin’s federal tax amount to $5,685 ($37,900 x 15%). Without this CRA tax break, his federal tax would have come to $6,000 ($40,000 x 15%).

Make the most of your CRA tax break

The workspace-in-the-home tax break has helped Kevin save $315 in federal tax, which he can invest in Enbridge (TSX: ENB)(NYSE: ENB). Enbridge stock is trading at $38.07 and offers a dividend yield of 8.5%. In the Canadian Dividend Aristocrats list, Enbridge is among the top five.

Enbridge is important for the North American economy, as it accounts for 20% of natural gas transmitted to the United States and 25% of crude oil transported in North America. In the third quarter ended September 30, Enbridge’s net profit increased 4% year over year to $990 million, despite the upheaval caused by the pandemic. The company aims to save $300 million in cost in 2020. It is a good time to invest in its stock, as it took a hit from the pandemic and is trading close to its nine-year low.

Enbridge stock will give you an annual dividend income of $27 on your $315 work-from-home tax break.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

More on Dividend Stocks

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Turn Your TFSA Into $1,000 a Month in Tax-Free Income

Build toward $1,000 a month in tax-free income with a TFSA. See how Enbridge, Scotiabank and ZWC could help, and…

Read more »

customer fills up car with gasoline
Dividend Stocks

How Much Emergency Money Do Canadians Actually Need?

A safety fund equivalent to 3 to 6 months of living expenses is generally the baseline buffer that Canadians would…

Read more »

woman holding steering wheel is nervous about the future
Dividend Stocks

Still Up Double Digits This Year: Should You Still Invest in TSX Stocks After Thursday’s Dramatic Drop?

The TSX has gained about 136% over the past decade. So, stay invested, dollar‑cost average, and maintain diversification. 

Read more »

Real estate investment concept
Dividend Stocks

Intact Stock: Would I Buy It for Growth, Income, or Both?

Intact’s modest yield makes profitable long-term growth the main attraction, with catastrophe losses putting the next purchase to a test.

Read more »

hiker with backpack in the mountains
Dividend Stocks

2 Top Canadian Dividend Stocks for $1,850 in Annual Passive Income

With reliable cash flows, high dividend yields, and strong growth prospects, these two Canadian stocks suit income-seeking investors.

Read more »

Data center woman holding laptop
Dividend Stocks

3 Canadian Data Centre Stocks to Buy Now, Ranked

Three Canadian stocks offer strategic exposure to the AI buildout and in-demand data centres.

Read more »

people sit in two wooden beach chairs facing the Caribbean ocean holding drinks and making a toast
Dividend Stocks

Is Manulife Worth Buying for Its Dividend for Retirement Income?

Manulife Financial (TSX:MFC) stock looks like a bargain buy for retirees seeking strong, growing dividends.

Read more »

diversification and asset allocation are crucial investing concepts
Dividend Stocks

How I’d Use $500 a Month to Build a Dividend Portfolio Before Retirement

A $500 monthly habit can build retirement income through contributions, reinvestment, and businesses that keep cash after their payouts.

Read more »