T2200 & T2125 - Home Office

I have a new client who has T4 income and is now working from home. He & his wife also have a couple revenue properties and is importing used boats and reselling.

My question is in how to claim home office expenses and how to appropriate to T2200 and to T2125’s? Also should I use 2 T2125’s, one for rentals and one for boat business?

Thx

T2200 is issued by an employer in an arms length transaction. His employer must have issued and signed the form. You can’t simply make one for him if he doesn’t have it. Alternatively, you may want to check a temp program launched by CRA in 2020 in which people working from home can deduct a certain amount without having to produce T2200.

Rental incomes flow through T776e not T2125. Your client needs to check he has met the sales taxes obligations and city licensing rules.

Thank you.

Sorry if I didn’t make myself clear. The client is a T4’d employee with a T2200 and is a sole proprietorship with rental income and another small business starting. The concern is how is home office expensed? Can the T2200 from T4 income and T2125 from Self employed income both claim home office expenses?

What the EMPLOYER does is irrelevant for the EMPLOYEE. The employee would not include a T2125 or T776 - just use the T4, and fill out the T777 according to what their T2200 specifies - the employee might or might not be able to claim home office expense (depends what the employer specified on theT2200).

@Nezzer
I think what @tome is saying is that this individual has two or three distinct types of income:

a) Employment Income, as indicated on his T4 slip. The individual worked from home due to covid for part of the year and was issued a T2200 form to be allowed to claim his Home Office expenses. His home office expenses would be claimed on the T777, prorated for the amount of time he uses this home office for this specific Employment Income. Alternately, he can claim the $2.00 per day for a max of 200 days = $400 without having a T2200 slips based on the number of days he actually worked from home for his employer.

b) Self-Employment Income: Importing used boats and reselling.
Yes, home office can be claimed on the T2125 for this business, again prorated based on the amount of time this individual uses this space.

Business Use of Homes would be allowed for both (T777 & T2125) because they are both for distinct time periods in the day/year that don’t overlap.

c) Rental Income: The Revenue Properties sounds like it could be Rental Income recorded on the T776, as also indicated by @solutions2f, although it sounds like @tome is considering filing this income on a T2125, considering this as sole proprietorship Business Income, possibly in order to also claim Business Use of Homes expenses for the management of this property vs claiming management fees on the T776??? Without knowing the details of this business and how it is set up, I’ll reserve comment on how to claim it.

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You have got three windows of opportunity to claim legitimate portion of the home office expenses. While both T2200 and T776e have limitations, T2125 has a lot of room to accommodate valid expenses. But really depends on the amount of sales to be reported on T2125 vs T776e vs the amount of taxes deducted on the T4. Needs a careful optimization to maximize the benefits.

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Thanks, Gerry. Sorry @tome - I don’t know how I read “employer” in your last response…must be tired eyes.

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@tome
You need to apportion home office expenses as is reasonable for each of the income streams. Rule of thumb is to use the amount of floor space used for the office, compared with the amount of living space in the house (total of all levels, if there is a second storey, basement, etc). In addition, you have to reduce that percentage for the amount of time spent by the taxpayer on each of the relevant income streams. For example, if your client has a 100 sq ft room that is a dedicated office space in his home of 1,000 sq ft, that means the maximum amount of home expenses would be 10% (across all income streams). If he spends 1 hour per month in the office, managing the rental income, that is 0.137% of the year, so the amount of home expense applicable to the rental income (on T776) is 0.137% x 10% = 0.0137%. Let’s say the total home expenses (insurance, property tax, mortgage interest, etc) amounts to $10,000 for the year. The amount of home office expense applicable on the T776 would be $1.37.

See relevant info for each of the income streams:

https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/business-use-home-expenses.html

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4036/rental-income.html

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/compare-methods.html

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I love the feedback and learning you people provide to allow me to provide the service and knowledge our clients deserve.

From how I am understanding things, no double or triple dipping but looking at each scenarios to see which would help my client the most and as mentioned by @solutions2f optimization is key.

@Nezzer no problem regarding your reading employer rather than employee :wink:

It is more a matter of looking at each income stream and allocating appropriately, based on some realistic basis, not on what would benefit the taxpayer most.

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