COVID-19 Tax Planning Considerations for Employers & Employees

As we have been receiving many inquiries from our clients impacted by the COVID-19 pandemic, we have published this communication to address the Canadian Employment tax issues which are impacting many businesses and their employees.

The below information contains general information only and is not a substitute for professional advice or services.

Home Office Expenses

In order for employees to deduct employment expenses from their income, including home office expenses, employees must be required to work from home and incur related expenses. Under such circumstances, employers need to issue Form T2200 “Declarations of Conditions of Employment” to their employees. From a planning perspective, Employers should consider requiring employees to work from home during the COVID-19 outbreak in order to meet the CRA’s requirements. This should be documented formally in writing. Employees can deduct expenses for the employment use of a workspace at home, as long as the expenses are incurred to earn employment income. These costs include utilities electricity, heating, cleaning materials, and minor repairs. Mortgage interest, property taxes, home insurance are not deductible.

Eligibility for Employment Insurance

The one week waiting period for the claim of EI sickness benefit has been waived due to COVID-19. For employees who have no paid sick leave benefit, but are eligible for Employment Insurance benefits, they can apply for EI sickness benefits if they are in medical quarantine or asked to self-isolate by their employers for 14 days. Employees can get EI benefits for the full 14 days. In order to claim EI sickness benefits, employees must be losing 40 percent or more of their weekly income and have worked 600 hours or more in the last 52 weeks or since their last claim for EI benefits. There is no requirement for a sick note or medical certificate. For employees that fall sick beyond the 14-day period, they can receive n additional 13 weeks of EI sickness benefits (up to 15 weeks total). The amount is calculated based on 55 percent of insurable earning’s for the last 12 months (or since the last claim) up to a maximum of $573 a week.

Costs associated with working from home

For employees transitioning to work remotely, employers should consider purchasing or leasing required equipment in lieu of a cash allowance. While employees are working from home, this will not result in a taxable benefit to the employees.

Parking/Mileage Reimbursements for Employees

If employees continue to work in their employer’s office space, they may choose private transportation to avoid the risk of possible exposure to COVID-19. Travel between an employee’s home and their regular place of employment is considered personal travel. Accordingly, the reimbursement by the employer for any mileage and parking expenses relating to travel to work is taxable to the employee. As such, the employer can consider whether the company will bear this tax cost on behalf of the employee.

Temporary Relocations

If an employee is temporarily working in a foreign location and must evacuate to return to Canada, the reimbursement of travel expenses, including temporary board and lodging in Canada, could be considered employment-related and not subject to income tax. Reimbursement of travel expenses for family members is usually taxable. Employers should consider reimbursing travel expenses, including board and lodging, instead of providing a cash allowance. Any non-accountable allowance would be considered a taxable benefit.

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