Supplementary information on the simplifying the home office expense deduction

This blog post provides supplementary information to the PBO’s Costing Note published on 4 February 2021 on the Simplifying the Home Office Expense Deduction.

The percentage of workers who reported home as their main work location reached a high in April 2020 at an estimated 41.1% of the labour force, according to the Labour Force Survey. The percentage who work from home declined afterwards, reaching 26% in September and October, and then rose slightly through November and December.

To determine the eligible population of taxpayers that could apply for the flat rate method, we reduced the total number of employed workers that had the capacity to work from home by removing self-employed individuals[i]. Next, we applied a take-up rate to estimate the number of individuals that would file for the flat rate method over the detailed method. We utilized confidential CRA information as well as modeled a separate take-up rate based on home ownership statistics in order to estimate the interested population. With the detailed method, individuals can claim rent, cost of electricity, heating and maintenance. Most working Canadians cannot deduct mortgage interest, principal mortgage payments, or capital expenses. Therefore, we anticipated that individuals who rent would be more likely to file under the detailed method. From here, we anticipate a net take-up rate for the detailed method to be roughly 22%.

On average, we estimated that approximately 3.8 million taxpayers per month would claim the flat rate method over the 10-month period. The total number of estimated workers varies each month, with an estimated 4.4 million taxpayers applying for the flat rate method in April and 3.3 million taxpayers applying for the flat rate method in September. This average does include a portion of taxpayers that would likely choose to file for the detailed method in a counterfactual world where the simplified method does not exist.

[i] Self-employed taxpayers can deduct expenses through the business-use-of-home deduction. More information on rules and exceptions for the home office expense deduction can be found on the Government of Canada’s page on Home Office Expenses for Employees.