Undoubtedly, the COVID-19 global pandemic has had, and continues to have, an unprecedented effect on many Canadian businesses and workplaces. While some have managed to continue operating in the uncertain environment, most have had to significantly adapt business practices to abide by government restrictions and public health safety guidelines designed to keep employees and customers safe.
As an emergency response, many businesses have mandated the vast majority of employees to work from home to the extent possible and practical.
As we continue to adjust to a “new normal” with the gradual re-opening of physical workplaces, some employers may be contemplating long-term modifications to their policies related to working from home. As employers and employees adapt their working habits to the new environment, it is important to ensure that employees are equipped with appropriate tools to work efficiently, productively, and comfortably from home.
In this first of a two part bulletin series, we discuss some of the tax implications employers should keep in mind when considering providing their employees with equipment and supplies to support productivity as daily routines are adjusted to working from home.
Common examples of equipment employers may consider providing employees include:
New home computer equipment, monitors, printers, scanners, etc.;
Webcam and headset for video conferencing meetings;
Upgraded internet / phone plan;
Comfortable and ergonomic chair or desk configuration, or other office furniture.
Employers may also wish to reimburse employees for general office supplies (i.e. paper, pens, calculators, toner, etc.). Alternatively, employers may choose to pay employees a general allowance to compensate for the additional out of pocket costs of working from home.
In all instances, it is important to bear in mind the tax implications when considering reimbursing employees for expenditures on equipment and/or supplies, or providing them with an allowance. The structure of these payments may have payroll source deduction (i.e.: CPP, EI, withholding taxes) implications, as well as income tax ramifications to employees.
Based on established principals, there is generally a taxable benefit to an employee where the employee obtains an economic advantage from goods or services (or reimbursements for such) received from their employer. However, in instances where it can be demonstrated that the expenditure was primarily for the benefit of the employer, there should not be a taxable benefit to the employee. Questions may arise with respect to how these well-established principals should be applied in the current COVID-19 situation, where employees are required to work from home by their employers and/or government regulation rather than by their own choice. Accordingly, determining whether the employer or employee is the primary beneficiary of the expenditure can be unclear.
The Canada Revenue Agency (“CRA”) was recently asked if payments made by employers to employees for the purpose of acquiring computer equipment to work from home would be taxable to them as employment benefits given the COVID-19 situation.
The CRA confirmed that a general allowance paid to employees to buy computer equipment without having to submit invoices would have to be included in their income as a taxable benefit. However, the CRA would accept that reimbursements, not exceeding $500, for the purchase of computer equipment would be considered primarily for the benefit of the employer provided that such equipment permitted the employee to work immediately and more efficiently from home. Accordingly, this reimbursement for computer equipment would not be a taxable benefit to the employee.
It is important to note that the above administrative guidance from the CRA pertains specifically to computer equipment (not clearly defined), and places a firm restriction on the maximum amount that can be reimbursed in order to fall within CRA’s purview of what would not be considered a taxable benefit. However, without further guidance, it remains unclear whether the CRA would be willing to extend this view to encompass employer reimbursements for other equipment or furnishings, in light of the continued current circumstances.
As another alternative, employers could choose to establish policies to maintain ownership of any furniture or equipment provided to employees to set-up their home office. If the furniture and equipment is required to be returned to the employer upon cessation of employment or a return to the office, the employee should not be considered to have received a taxable benefit.
Reimbursements for office supplies purchased by employees would not generally be considered a taxable benefit provided they are used exclusively for employment-related purposes. However, based on historic CRA positions, allowances or reimbursements paid to help employees cover other home office expenses including upgraded cellphone/internet plan charges and additional hydro costs as a result of increased usage would likely, by default, be considered a taxable benefit to employees. Additional guidance on whether the CRA may be willing to temporarily further relax the administrative guidelines pertaining to the taxation employee reimbursements and allowances in these circumstances is necessary.
In an upcoming article, we will discuss the rules that may permit employee deductions for certain home office expenses while mandated to work from home during the COVID-19 pandemic.
Please contact your Shimmerman Penn advisor for further guidance on the impacts COVID-19 on your specific tax situation.
