Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Whether an employer has reasonable grounds to issue a T2200 to an employee
Position: It is a question of fact to be determined upon a review of the circumstances.
XXXXXXXXXX Charles Rafuse
May 26, 2005
Re: When to Issue T2200
This is in reply to your letter of February 18, 2005, concerning when an employer has reasonable grounds to issue a T2200 to an employee.
Specifically, you have requested guidance on a number of examples where there is no contract of employment and an employee works from home. They are as follows:
1) The employee supports a global account and does not have access to a company owned office space.
2) The employee has access to a company owned office space but requests that work at home be permitted.
3) The employee may work from home less than 50 per cent of the time.
4) The employee may work from home more than 50 per cent of the time.
The particular circumstances in your letter on which you have asked for our views pertain to a factual situation. As explained in Information Circular 70-6R5, it is not this Directorate's practice to comment on proposed transactions other than in the form of an advance income tax ruling. Regarding situations involving completed transactions, all relevant facts and documentation should be submitted to the local tax services office for their views. However, we are prepared to offer the following general comments, which may be of assistance.
A deduction for office space in the home expenses is allowed under subparagraphs 8(1)(i)(ii) and (iii) of the Income Tax Act (the "Act"). Generally, an employee in computing income for a taxation year is allowed to deduct amounts paid for office rent, supplies and salary to an assistant or substitute. Subject to certification by the employer, these expenses are deductible provided the employee is required by contract of employment to supply and pay them.
Form T2200, Declaration of Employment, pursuant to Subsection 8(10) of the Act, is the prescribed form which must be signed by an employer certifying that the required conditions were met in order to claim deductions under paragraphs 8(1)(a),(f),(h),or (h.1), as well as subparagraphs 8(1)(ii) or (iii). Since the form is used for various types of expenses that may be claimed by an employee, some of the questions on the form may not be applicable to a particular situation
Subsection 8(13) of the Act prohibits the deduction of office in the home expenses, unless the individual either principally performs the duties of the office or employment in the work space, or the work space is "used exclusively ... for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties".
Although ordinarily to show that the taxpayer is required by the contract of employment to pay home office expenses necessitates that there be an express requirement within the terms of a written contract of employment, it is the Agency's general position that this requirement may also be considered to have been satisfied where it is tacitly understood by the employer and the employee that the office in the home be provided, if in fact, it was necessary under the circumstances to fulfill the duties of the employment. In order to determine if an expense incurred by an employee was actually an implied requirement of the contract of employment, the Courts have reviewed whether or not failure to meet the requirement could result in the cessation of employment, poor performance evaluation or other disciplinary action on the part of the employer. Where the employee works from home and does not have access to an employer owned office space appears to indicate that there is an understanding between the employee and employer that the employee is required to work from home. If this is the case, it is our view that the employee would be able to deduct home office expenses and the employer should issue a T2200.
Where the employee has access to a company owned office space but requests that work at home be permitted can still meet the test that the taxpayer is required by the contract of employment to pay home office expenses. Although the telework arrangement is voluntarily entered into, in our view, once an employee and the manager have entered into a formal telework arrangement, the employee is "required" to provide a work space in his or her home and pay for some additional costs associated with providing this work space.
The employee works from home less than 50 per cent of the time. As explained above the deduction of home office expenses are prohibited unless the individual either principally performs the duties of the office or employment in the work space, or the work space is used exclusively for the purpose of earning income from the office or employment and used on a regular and continuous basis for meeting customers or other persons in the ordinary course of performing the duties. The term "principally", for the purposes of the Act, is taken to mean in excess of fifty percent while an "office" is defined in subsection 248(1) of the Act to mean "the position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration...". Whether either one of these conditions is met by any particular employee involves a factual determination. However, an employee performing less than 50 per cent of their employment duties in the home office would not satisfy the first condition.
As explained in Example 3, an employee performing more than 50 per cent of their employment duties in the home office would satisfy the first condition of Subsection 8(13).
We trust this information is helpful.
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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