Tax update: Form T2200 and home office expenses

Edward Rajaratnam: [00:00:01] Well, I think it's two minutes past the hour. I think we are ready to begin. Hello everyone. A very happy New Year. On behalf of EY, on behalf of Ernst and Young and our people advisory practice, I want to extend a very, very warm welcome to all of you. Thank you for taking the time out of your busy schedule to engage and participate on this webcast that is called Form T2200 and home office expenses. I can tell you that I've had the experience of being involved in many webcasts throughout my career here at EY but this has been one of the most anticipated webcast that has got a lot of traction. Within just a few days, especially during the holidays, we got a lot of traction with a lot of registrations. And today, right in front of you, as you can see the numbers, we do have a full house. When I was reviewing the registrations this morning, the amount of people and the individuals that had registered for this session, we observed that we have people from mid-size as well as large companies across various industries that have actually dialed in. We also observed that the actual functional role of individuals that are in this webinar and who had registered is just not limited to one department. We actually have professionals from payroll, from tax, from HR, finance, legal, to name a few that are dialed in. So, this means that this topic is clearly important to all of you, cross industry, and cross functional groups. And we are glad to be hosting this session for you. So, in a nutshell, the objective of today's session can be actually carved out into three distinct categories. number one is about the awareness of the rules. What are the T2200 rules? number two is to actually understand the different challenges that might impact the way the rules are interpreted. And number three, what are the potential next steps for you to reflect on? So, those are the three objectives. By way of introduction. My name is Edward Rajaratnam and I'm a Tax Partner and have the privilege of leading our Global Employment Tax practice. Co-presenting with me is my friend and colleague Lawrence Levine, who is a lawyer and partner in our Rewards practice. Both Lawrence and I are part of our People Advisory Services team, and even though many of you have joined this webcast, please note that this is part of our Thinking Ahead webinar series where we actually explore various topics related to the people agenda that help our clients to anticipate and be prepared for future success as it relates to people. So, if you would like to be plugged in and attend any of those future webinars, please feel free to let us know. Before we begin, just a couple of admin protocols. This session is being recorded and will be shared with all the individuals that have registered Soon after our webcast. Especially if you wanted to share it internally with your colleagues that were unable to attend, that will definitely be a benefit. Just to ensure that we have a steady flow to the topics that we will be discussing and to avoid any distraction, we have decided to close the chat line and also the mute button to listen only mode. And on that note, why don't we begin? So, today's agenda, as you see on the screen, we're going to cover five topics or five sections as I call it. number one is about the background. What is the T2200, and the home office expenses and what is the journey that the CRA has been providing over the many years? And then number two, what is very important to all of you is what's new for 2023. number three is about a refreshed T2200 form. I just want to caveat this by saying that the actual form has not been finalized yet. We have been told that it will be towards the latter part of January of this year, obviously, January 2024, but for now, we do have a preview of what we think the form is going to look like in draft mode that we will be sharing as well. And number four, what is very important, how does it impact you as an organization and your employees that are working from home? And then last but not least, it's FAQs are frequently asked questions. We're not going to be taking questions today live but what we had done is a lot of you have been reaching out to us over the last two weeks about the many questions, even after the invite was sent, So what Lawrence and I have done is we have categorized those questions, and we will tend to address about ten of the most common questions that we wanted to kind of bring to your attention. One thing to point out, even though this is, we are hoping that this will be a very beneficial session to you. Just want to be transparent and let you know that the Canada Revenue Agency has not yet validated or confirmed a few of the open questions that are out there. They have committed to providing an update on their website, on their FAQ section before the end of January as well. So, we are planning to have a subsequent webcast as well as an EY tax alert that will be going out towards the end of the month. Once we do hear from them, however, we wanted to not wait till then. I think this is extremely an important session for all of you. So, that's the reason we just wanted to have it today, which is Wednesday, January 10th. So, if we begin with section one, what is the background? So, what is the background that we need to think about when it comes to T2200 and home office expenses. So, if you look at the journey pre 2020 tax years, there was always a need for an employer to sign the Form T2200 for employees to claim home office expenses. generally, we used to see two main conditions or two main categories of people who wanted the T2200. One is those that may be related to any sort of sales role, or commissions that would have had expenses that needed to be signed off, or those that had a permanent work from home arrangement. That would have been. And those were the type of people that would have requested the T2200 forms before the year 2020. And that in indirectly means the number of people that wanted these forms was far less. And then what happened is, unfortunately, Covid happened in the year 2020. And what we have seen is for those three years, from 2020 to 2022 tax years, what the CRA gave was two options. And the reason for this, as we all know, is that all of us, were for safety reasons and health reasons, working from home during the years and because of the anticipation of So many people working from home and incurring home office expenses, what the CRA did is they provided two options for to claim these expenses. And number one was called the Temporary Flat Rate method. So, the Temporary Flat rate Method, just to give you a quick context, is a deduction of $2 per day. In the year 2020, this began in March of 2020. So, if you think of 200 days of maxim for that year, there was a maxim of $400 that could be claimed by an individual. And the beauty of that is that you actually did not need a signed T2200 form. So, this was a very convenient option that the CRA produced. And then that was for 2020, for 21 and 2022, that increased because we had 250 days in the calendar year. That was to a maxim of $500 each for those two years. And then as long as you use the Temporary Flat Rate Method, you actually did not need a form. The second option was the Detailed Method, and that was the ability to claim home office expenses more than the Temporary Flat Rate Method. And the way the options worked is you had one of the two options, and the beauty that existed for the last three years was actually the short form, the T2200S form, which was just a one-page form which a few basic questions, and that would be sufficient for an individual who were working, due to Covid, who were working from home to actually claim those expenses. So, this is what existed over the last few years. So, now moving on. What's new for 2023? number one, Temporary Flat Rate Method is no longer in effect for this particular year. So, what that means is that everybody that needs to claim home office expenses actually need a completed T2200 form. There isn't that $400 or $500 way that you do not need a form. The Temporary Flat Rate Method has gone. The second one, what's new for 2023 is there is a refreshed form 2200, and there isn't that short form of the 2200. So, what this means is there's going to be a lot more burden administratively to complete a form that is not as efficient or not as simple as the short form of the T2200. As mentioned, the CRA is in the process of updating this form. This is going to be made available in late January but what [INAUDIBLE] Lawrence is going to go through a draft in a few minutes. What it says. Those that worked more than 50% of the time from home for a period of at least four consecutive weeks. So, this is not over the whole year. The baseline test is over a four consecutive week period. And then the expenses, of course, has to be directly related to their work. And if these expenses are reimbursed by the employer, then obviously employees cannot double dip or take a deduction for those particular expenses. Eligible expenses. So, this is something, even though I have it, we have it as what's new for 2023, it has not changed from previous years. reasonable monthly home internet access fees, and as most of us know, there are other home office related expenses, that can be claimed. And last but not least, what is very important is the employer signature. So, electronic signatures are accepted for the 2023 tax year and beyond. What that means is you do not need to have a manually or handwritten signature, is not is no longer required. This is not only for the 2023 year, but for beyond as well. Just to kind of recap, what are the eligible expenses for all your employees? What you see on the screen is two columns. The one on the left are eligible for salaried and commission employees. I'm not going to read out everything. It starts all the way from rent paid to maintenance, and the ones on the right is the additional ones that are available for those employees are commissioned. And if the employer requires employees’ to pay for office supplies, that also can be part of your expense deduction by the employees. Just to quickly point out the ineligible expenses. These are the ones that cannot be claimed all the way from mortgages and all down to any sort of renovations or wall decorations. And last but not least, what's new for 2023 is to quickly touch on Quebec and the harmonization of Quebec. Revenue Quebec generally harmonizes its rules with the federal and we have seen that happen over the last three years, from 2020 to 2022. And consistent with the federal rules, the Temporary Flat Rate Method will no longer apply for 2023. And if, for those of you who have Quebec employees, would know that Quebec never had a separate form, they only had additional questions related to Covid that existed on the form. But for the 2023 version, those questions are no longer there on the form itself. So, just to kind of tell you, this is the way Quebec harmonizes with the federal. And on that note, I'm going to hand you to my colleague Lawrence to take it from here. Lawrence, over to you.

Lawrence Levin: [00:13:12] Alright. Thanks. Thanks very much for the for the background. So, let's get into it. Ed, maybe we can share the draft T2200 form. And what we can do is we can kind of break it down on a question-by-question basis. Thank you. So, here Ed was able to put the whole T2200 on one page. Unfortunately, it's too small for me to read. So, what we've done is we've broken it up on a question-by-question basis. So, let's go to the next slide. Right. Okay, So the form much like in previous years starts off innocently enough. Basic information. for example, an employee's first name, last name, employers address, job title and brief description of duties. So, this can be like reasonably high level as long as it's descriptive. No need for paragraphs, describing what the employee did. You'll note what's not there, in that there's no requirement for the employee's social insurance number, which is helpful from a data protection perspective. Next slide please. So, let's really get into the to the key questions over here. So, from a from an employer’s perspective really, I guess what you want to know is, do you have to complete the T2200 for an employee and how do you complete a T2200, especially given the new types of work in the wake of Covid-19. So, for example, hybrid employment is a lot more common than it was before. So, the questions are, sort of do you need to prepare a T2200 for a lot of employees who may be working part of the time in the office, part of the time out of the office? And like, how would you go about, how would you go about doing that? So, question one is a big question, but let's maybe go to question two first because it's the easier one. Let's deal with that first and we'll go back on question one. So, question two says enter the periods of employment during the year. So, that was sort of the period during which the employee worked in the year. So, if the employee was employed before the beginning of 2023 and worked throughout 2023, then the period would be January 1st of 2023 to December 31st of 2023. Okay. So now let's go back on that first question. Can we just kind of go back to the back one slide. So, the question says, and I'm just going to read that first question because it's pretty important. It says, did this employee’s contract require them to pay their own expenses while carrying out the duties of employment? Answer yes. Even if you're given an allowance or reimbursement in respect of some or all of such expenses. Then goes on to say, if the answer is no, the employee is not entitled to claim employment expenses and you're not required to answer any of the other questions. So, keep in mind this question refers to a bunch of employment related expenses, for example, home office expenses, automobile expenses, and so on. So, the answer to this could be yes for any one of those reasons. But for purposes of our discussion today, let's just assume that the only expenses which the employees are potentially required to pay are expenses related to the Home Office. So, with that in mind, let's look at the question. And if we look at where it says there that the CRA is saying answer yes, even if you give an allowance or reimbursement in respect of some or all of the expenses. So, the question here is not asking, like does the employee ultimately bear the cost? Right. The question is asking, under the employer employees’ contract, did they have to pay their expenses? Okay. Ed, maybe we can go the next slide. Thank you. So, particularly, let's examine this in a few situations. So, for example, let's take, for example, a situation where you've got a fully remote employee. So, you have a fully remote employee. Their contract of employment says you will work exclusively from home, or more or less exclusively from home. In those circumstances, there would be a written contract which specifically says this employee is at home all the time working at home. So, there's probably not much ambiguity in that type of situation. This was the type of situation which may have existed prior to Covid. Nothing new. The new types of situations are sort of like a hybrid work situation. So, a lot of employers, for example, require employees to come in, for example, three days a week, and the employees are able to work from home the remaining two days. So, what do you do in those types of situations? So, the CRA, you know, is looked at it. But I guess first off, I guess the question really is, let's say, for example, you have an employee who, prior to Covid was coming to the office every day and then afterwards, you know, has a hybrid work arrangement. On the one hand, you could argue that this employee, you know, was not required to pay expenses because it could have come into the office every day and then they wouldn't have had to pay their home office expenses. The question is, is this the position that the CRA seems to be taking? So, let's kind of dissect the various elements of this question and see what the CRA has said. So, the first thing in that question one is the employees’ contract, right? So, what is the contract? Right. So, although it's not explicit, it's pretty much implied that the contract we're talking about here is the contract of employment. Right. And as you probably know, employment contracts can take many forms. You could have an extensive written employment contract. You could have a one-page letter agreement. Or there may be no formal employment contract at all. Right. What the CRA seems to have been saying in a fairly recent, a 2022 interpretation, is that when they look at, when they interpret the term employees’ contract, they'll consider a written contract. And they'll also consider any other types of agreements with the employer. So, for example, if there was an email between the company and the employee that could be that could be considered to be a contract. And the CRA went further than that. And they've said that even if there's a verbal agreement between the employee and the company, that could also amount to the contract. Right. So, the question is, does that contract sort of require work from home? So, an example may be, if there's an arrangement whereby the employee, you know, has agreed with a supervisor that they'll work, let's say, for example, Mondays, Tuesdays, and Fridays from home, that could potentially be construed as an agreement. Right. And the CRA seems to be taking a fairly low threshold to the meaning of an agreement or the employees’ contract for this purpose. And then what the second element is that the employee must be required to pay the expenses. And as I noted before, you know, this requirement, some may say, well, employees not required to pay anything. They could have just come into office. But where the CRA seems to be going and like as Ed noted, we're waiting for more definitive guidance. But based on a review of CRA interpretations, in particular the guide they put out in December, the T4044 employment expenses and various other correspondents we've had. We have reason to believe that the CRA is going to maybe infer this requirement. So, once they conclude that under the employees’ contract, the employee was to work from home, it seems likely that the CRA may infer from that that the employee was then required to pay home office expenses. So, for example, if you've got to be at home, it's reasonable to expect that there would be, for example, electricity and utilities associated with the work from home. So, just to conclude on that point, I mean, while we don't have definitive guidance, there seems to be indications from the CRA that this requirement under the employees’ contract to work from home may be quite, may be quite a low bar. And provided that there's some sort of agreement between the employee and the company, which could take the form of a verbal agreement that could be a requirement under the contract for the employee to perform duties from the home office. Things to keep in mind is like, let's say, if you have a situation where an employee has a dedicated office, it's getting kind of rare these days, but let's say they've got a dedicated workspace. That may be a situation where the employee, you know is considered not to be required to maintain a home office because they could have come in and there was a place available to them. But in the situation, particularly where there's hybrid work, no dedicated spots, maybe not enough spots for the employee to like if all employees came in on a single day, it seems likely that the CRA, will consider in those types of situations that the employee was required to maintain a home office. And if you can go to the next slide. Thanks. Okay. So, the next question is some of these were, you know, pretty similar to what we've dealt with before. Question three deals with commissions, you know, and that will be determined based on whether it's a commissioned arrangement or not. And then four is sort of the situation where an employee is, there's a reimbursement, that the rationale over here is that if the employee is reimbursed, they can't claim a deduction as well. So that would be, you know, whatever the situation dictates. So, next slide please. Okay. So question five is an interesting one. The one which comes up in the context of remote work is that third bullet. Did the employees contract employment require them to pay for supplies used directly in the work? So, where this comes up with things came up during Covid, things like printer cartridges, which are actually really expensive if you've ever had to buy them, things like that. If the printer ink was being used for work and the employee, you know, under the contract had to work at home, let's say, for example, three days a week, then there's probably, you know, a pretty good argument that the work required to use suppliers if for example, they had to print things and mail them out and so on. Next slide please. Okay. So, question six, this is the one which pertains to home offices. So, that question six, did you require the employee to use a part of their home for work? So, that's much along the lines of what I was discussing with respect to question one. And that's where issues such as whether the employee is required under the contract, that's where those types of things come up. See what the CRA says below that. Note that this does not have to be part of the employee’s employment contract may be written or verbal agreement. So, the series emphasizing that the threshold for the employee being required to use a part of their home for work, may be quite low. Then right underneath that it talks about, it says if yes, so if, for example, the employee is required to use a part of their home for work, what percentage of the employees’ duties of employment were performed from the Home Office? So, the CRA at that point is asking, you know, an employee to fill in, like the percentage. And if we can go to the next page, the next, next slide on that. So, that can be difficult. Right. So, the question is, you know, how do you know how much of the employees’ duties were performed from their home office? This question was not on the T2200S, which was a special Covid form. And it's difficult for the for employers to know. An approach which has been adopted by some clients is to go to employers and ask the employees to say, well, how much time did you what proportion of your work did you do from home. And then have someone, you know, who has some sort of knowledge of the employee review to see if that amount is within the realm of reasonableness? The question is sort of, well, what is what is the measurement period? So, if, for example, you say 60% of the employees’ work was performed from home, what is the measurement period? So, the measurement period here is likely the full year or the full period of the year when the employee was employed. Right. So, you'd be looking over that in total period. How much of the employees’ duties were performed from the office? Important to note, Ed mentioned that four-week period. Right. And the CRA mentioned that four-week period in the employment expenses Guide, which was introduced, which was issued in December, where they talk about the four-week period. And it seems like the purpose of that four-week period is to determine whether the employee qualifies for to deduct home office expenses at all. So, the question there is, under the tax rules, in order for an employee to claim home office expenses, you know, they're going to be required in the contract of employment to have the Home Office. And the Home Office also has to be a place where they do more than 50% of their work. Now, the question is, what is the measurement period for that 50%? What the CRA seems to be saying is that the measurement period for that 50% is a consecutive four-week period. But let's say you meet that period. So, during the four-week consecutive four-week period, more than 50% of the work is done from home. After that, it doesn't seem like it's necessary that that be maintained. But if the employee is doing less work for the rest of the year, it seems like that less work will factor into the quantum of the deduction, right? Because the employee would only be able to claim a deduction to the extent that actually incurring expenses to do their work. Now, thing to note, and this was a point which is emphasized actually in the CRA, in various CRA commentaries, is that when the employer fills out the amount of the duties, the employer is not certifying does not need to certify that the employee did more than 50% of their duties from home. So, if there really is a bona fide a work from home, well, there is a work from home arrangement and the employee did less than 50%. That doesn't necessarily, and the employer indicates, for example, 40%, that doesn't necessarily disqualify the employee from claiming home office expenses. Next slide please. Okay. And then, you know, the end is, so the employer signing this declaration the best of my knowledge that this information is correct and complete. You know, in our experience the people have signed off on these forms have often been, for example, the head of HR or various functional heads, but [INAUDIBLE] This be some sort of process by which the person signing off can have a person has some knowledge of the employee review the circumstances to see that, you know, that indeed the employee actually, you know, did work from home and so on. And I think that is that's more or less all that I have to say for now on the form. And I'll turn it over to Ed to talk about some practical implications.

Edward Rajaratnam: [00:29:00] Yeah. Thank you. Lawrence. Just before we go into that, If I may piggyback to what Lawrence has said about the form, and just to summarize, I would say on the form, there are three things to keep in mind, right? The new form, the refresh form is going to have a lot more detail than the short form. So, that is given. Number one. And number two, I think what is very important is what the CRA has done or is planning to do is move all the questions related to the home office right to the front of it. And the reason is they're saying, okay, why do people have to go through all three pages of this long form? So, just to be efficient, what they are hoping to do is move all the questions to the front end. And that is exactly what we were showing with the top six questions. And what is important is number three is for you to look at the bottom. What it says if the employee only had home office expenses, then actually you can skip to the employer declaration thing. So, that is a little bit, it's not as efficient as the T2200 short form for sure, but this is some way that the CRA is saying, okay, you do not need to go through all three pages. You can just skip after you finish question six, so I just want to kind of wrap that up before we begin. Now when we talk about, okay, Lawrence has gone through the actual form, the unique some of the questions or issues that we're trying to clarity from the CRA. But at the end of the day, what does it mean to you? What are the practical implications? Number one, right off the bat, this update is new. So, it's going to involve multiple stakeholders to make decisions on your process. I'm sure most of you had to go through that process over the last three years. It's not as though it's one individual or one department making a decision. It is in consultation with other departments as well. It may be payroll, it may be HR or tax, but you have to involve multiple stakeholders. And number two, it is a change. It is a change from previous years and that is change management. There has to be employee communications that have to be involved in regard to this. And even though we are still waiting for clarity from the CRA, especially for those that are working from home optionally and so on, I think it's clear to say that there is going to be an expected increase in the number of employees that are needing these forms. So, something to keep in mind.  We already know it's going to be a little bit, even though they are trying to be as efficient as possible with the long form, it is going to be a still an onerous task that did not exist in previous years. And then last but not least, leading practice is generally when is this expected? There isn't a deadline, but leading practice for those that have asked us about it is, from a timing point of view, what individuals have been used to, is around the time of the T4 wage slip. So that is something that needs to be managed as well. So, what this means is a lot of information implications, but I think this is gives nature to what you see on the screen, as we call it, a perfect storm. Right? There are a lot of things that are coming together at the same time. We have large number of employee forms that are going to come in. The whole question of who actually owns the whole T2200 process. Before 2020, it may not have been a big issue. It could have been tax or HR or payroll. But now with the increased nature, what does that mean? Do you need more? [INAUDIBLE] Need more funding or sponsorship? Do you have to go externally to get support on this? And also, that it's time sensitive, right? Everybody is hoping to complete their tax returns in March and April. And now CRA says you need this form to be able to claim home office expenses. So, there's a lot of things that are coming on at the same time that you need to be aware of. And what does that mean? What that means is, again, in summary, is to engage key stakeholders and then trying to figure out an efficient process. And that is very critical. Like, however, the process that you have to think through for the last three years to make a decision, you need to come together to think, okay, what is the efficient process, keeping in mind that we do not have clarity on this right now, but hoping by the end of January we would have had sufficient examples to look at every different scenario of the employee base to come up with an efficient process. And then last but not least, to manage the change management, there has to be the employee experience. For those of you in HR, that is very critical. That is going to be something of critical urgency in regard to communications that need to be looked at. Quite often we get asked [INAUDIBLE] how are clients in this? So, this is a question that has come up over the last three years. We got it over the things because a lot of companies are in need of support and that. So, we wanted to kind of provide a framework that will make sense in regard to, for you to kind of reflect, okay, is this something you can handle internally or is there support that you need to get from anybody outside your company as well? So, our Solution is based thinking of all what we have shared or will be sharing, it's taking into account the administrative process and the extra work that is going to be involved over the last, over the next two, three months. And the whole idea of how do we produce the forms and how do we actually distribute the forms. So, in a nutshell, what we do is we kind of, other than the business consultation of coming up with the key decisions, the way we look at it is we summarize it in three ways. Again, some things that have already been mentioned. What is employee communication and then the preparation and distribution of forms. And when we talk about employee communications, this is more or less an internal communication that you will be sending out. But what are the key things for you to be thinking about that is other companies similar in your shoes, have been thinking about that are putting in place for 2023 or have put in place in the previous years as well. So, one thing is to draft or review some communications, and as you know, if you have employees in Quebec, the communications have to be in both languages. Also, the FAQ section, and this is to help with the employee experience aspect, right? A lot of individuals will want to understand and get more clarity on examples, and especially for 2023 because we are changing. They are, they need more clarity in regard to a lot of questions that might come from them, or their internal tax accountants might be asking so it's better to give as much detail as possible. Sometimes Lawrence and I and our extended teams, we get invited to speak at internal employee webinars, whether it's a lunch and learn or something like on this topic so that people are engaged. But it's also to say that it's not just a company making a decision. This is based on external advice. It's based on what CRA and Revenue Quebec have come out with, just to kind of give that independent lens as well. So, that is something to think about. And then how do we prepare the forms? A lot of people like, so how do we prepare the forms? Now, the way that Lawrence has explained to us, even though you have six questions, there's a lot of information that is needed. So, there is, I'm not going to say anything different, there is a lot of going to be information gathering that you need to do. However, once you have gathered that once over, certain assumptions have been made, the way we get it is we get a lot of information in a predetermined format. So, the information does not need to come in one format. sometimes the personnel information comes on one file. And then any questions related to the T2200. Those six questions that Lawrence showed comes in a different format, but it can be as long as it is in a predetermined format. That is something that our teams generally work with. And then what we do with that information is to prepare the forms in bulk. We do have tools to do this in a very consolidated and secure way. And then one of the things that came out over the last three years just to share with you is, how do we distribute the forms, especially when you're going to have a lot of individuals that you need to send it. Right? And the beauty of this is we can have electronic signatures, but the way we do it is we do have a tool, again, technology driven, that has, that does a macro in regard to developing that electronic file. And that also is a very customized distribution that goes so that if Lawrence is getting a T2200, that's going to have his name on it, it's different from mine. And that is something customized. This communication does not come from anybody external. It has to come from internal. And that's why we will be working generally with your teams. involve your IT, in regard to protocols and to make sure that this happens internally as well. So, this has worked magically over the last three years. We are in the process with these new guidelines to make it work for 2023 as well. But we wanted to kind of take a minute to kind of show you, what basically, our solutions and how we approach on this is. And on this note, I think that is in regard to a lot of what we wanted to share but I think one of the most important things is frequently asked questions, right? I mean, as I mentioned at the beginning, we did get a whole slew of questions coming in over the last 2 or 3 weeks. People have been anticipating this and what Lawrence and I have done is carved out the key questions. Again, I want to phrase it to say that we don't have all the answers, but we are confident to get all the answers to you by the end of the month. And we will most likely have a subsequent webcast as well. So, Lawrence, is it okay if I ask you maybe to take a few of the first few questions?

Lawrence Levin: [00:38:58] Sure. And Ed, I know you always give me the hard questions, so bring it on.

Edward Rajaratnam: [00:39:03] For sure.

Lawrence Levin: [00:39:03] Oh, and this is no exception. Okay, So question one. If employees work from home voluntarily, i.e. a personal choice, will they qualify to claim the home office expense deduction require form 2100. So, this is like the million-dollar question, right? So, for example hybrid work. So, on the one hand you could argue that if employees could have gone into the office but choose to work from home, how could you say that they're required to pay home office expense. That's one argument. However, based on what we, you know, various CRA interpretations based on the employment expenses guide that was released by the CRA in December. And we think there's going to be more guidance coming from the CRA on this point. We think that the CRA is going to provide some sort of position to the effect that if there's an agreement between the company and the employee, that the employee can work from home, then they will read in that the contract of employment, the employees working from home and the terms of the contract of employment, and therefore there would be required to pay expenses associated with working from home. So, it does seem like in these types of situations, there's quite a high likelihood that the CRA may, allow the employee to claim home office expenses. Keep in mind, though, that the employee still needs to meet the conditions of more than 50% work from home over a four-week period. You know, the expenses used directly in, the course of employment and so on. Another point, which is very key, is we have to distinguish between an employee qualifying for the deduction and the Form T2200. The employer's responsibility is limited to the Form T2200. Whether the employee claims a deduction and how much they claim that's on the employee, right. If the employee gets audited, you know, they've got to deal with the CRA. you know, so I think it's always useful to kind of separate the questions. Right? So, the question a lot of companies are asking, well, do I need a prepare a T2200. And so, what, you know, you may want to do is if you have a hybrid work situation, you may want to put in place some a policy. Right? Assuming that that this is the way things go. And, you know, of course we're waiting to hear from the CRA, but assuming that the CRA says, you know, if there's agreement between the employee and the company, that the employee can work from home, like, what are you going to do? Right? Are you going to provide, T2200s to everyone? Are you going to provide it to everyone who asks? Or are you going to say, for example, that no, like certain classes of employees do not get T2200s? An example may be, let's say your company has a policy whereby employees are expected to be in the office at least three days a week. Right? So, in that circumstance, are you going to give the employee T2200? I mean, on the one hand, you could argue that, well, the employee is required to incur the expenses for the two days. Right? But, you know, two days, assuming it's two days throughout the year, they won't meet the requirements to work more than 50% of the time from home. So, you may want to give some sort of a thought as to, you know, whether, you know, under what circumstances you would be prepared to issue the T2200. And it may make sense to kind of communicate this policy if you have a policy proactively, as opposed to sort of waiting for employees and, you know, to come on a one-on-one basis, which could consume a lot of management time. Okay. Question two. Some questions on the Form T2200, The home office section are not easy to respond to. How accurate should it be? Especially the percentage of employment duties performed at home. Okay, so like I said, ED only gives me the easy questions. So, this is this is a difficult one to know. And as I noted before, you know, common practice was that the company would ask the employees to indicate this percentage and then review it to see, you know, whether it's in the range of reasonableness. I mean, keep in mind the form us in the knowledge, you know, the knowledge of the company. Right? So, it's a knowledge [INAUDIBLE], not sort of a situation where you have to kind of go to the ends of the earth to confirm these things. It's sort of based on knowledge and, you know, what we know about the employee’s working situation. So, if, for example, you think it's conceived that the employee says that they worked 50% of the time from home, and it's conceivable then most companies would agree with what the employee said and indicate 50% work from home. Alright. Next up. When will the refresh from T2200 be released and what about responses to many of the questions that need clarity? So, we've been in correspondence with the CRA, and we understand that the CRA will be releasing more detailed information towards the end of January, right? Particularly dealing with these questions around hybrid work and all, which are questions everyone's asking. And the CRA is well aware of it, and they know that it's something which needs to be dealt with on an urgent basis. So, we believe that that the CRA will be releasing something in late January. And we are we organizing a webcast so as soon as it comes out, we will, you know, we'll organize a webcast to unpack what the CRA has said and, and communicate it to you. Okay. And I think the next question is here, right?

Edward Rajaratnam: [00:44:29] Yeah, I can give you a break for a few questions, I guess. Yes. So, this question is about do employers issue this form automatically or only upon request from employees that actually meet the condition? So, this is quite an interesting question so I'm going to kind of respond to this based on what may be required legislation-wise, and then practically what we have seen over the last few years and what we anticipate for 2023. Right? All what the CRA says is that to claim home office expenses, you need a prescribed Form T2200 signed. So, that is all that they say they're not going to comment on whether it has to be done automatically or upon request, but I want you to kind of think through the whole process of completing this. I personally feel if you know somebody is meeting those conditions, then my suggestion, our point of view here is that you do that automatically and you do it for every individual that will qualify. Not to wait upon a request. You can choose to do that. That is totally up to you. But I will give you a reason why. I mean, even two weeks ago, recently, one of my clients reached out because who had gone to the position to say, look, we're not going to be bombarded by these requests from individuals. And this is for actually the 2021 tax year. We will wait for them to come back and request. So, this individual, just about three weeks ago, this employee was completing their tax return for two years ago, and they came back and was asking for the T2200S form. So, just think of the admin work involved. Whoever is producing these forms internally that a couple of tax years have gone, but you're still trying to complete that for two years. So, if you leave it open, there are individuals unfortunately, that may choose to file their tax return a year late or two years late. So, you're always going to have that trickle effect of having to complete that. So, to avoid that, the personal point of view is that you kind of do it automatically. I think that appears to be the most efficient way. If you are able to know who the eligible employees are, which is going to be a separate process, but just to kind of answer this question. The other one is what is the deadline for Form T2200 to be issued to employees? Okay, so we did address this briefly at the beginning, and I did, I may have scared a few people to saying late February, but I think that is based on what happened over the last few years because the forms were very straightforward. There was a short form, and the expectation of employees was to receive it at the time of the TFOs, but I can tell you based on experience, not all the companies issued it. So, there is no formal deadline for the Form T2200 that has been mentioned by the CRA. But the expectation if we were going to reverse engineer is that you and I need this to complete our personal income tax returns that is due by the end of April. So, sometimes employees may want to file or e file their tax return in March. So, that is where the expectation is but I don't think it's reasonable to say that all companies, because we are trying to figure out the process, we are waiting for the CRA to respond, that we can get all of these done by the end of February. So, what is very critical, even though the question is not asking this, is to kind of manage the expectation of the employees. So, as long as you can manage the expectations and send a communication to tell them we are working with the CRA with these forms, this will be made available to you, let's say end of March So, that it will stop the noise, stop the questions coming back from employees. But to answer your question, there isn't a specific deadline. Previous years there was an expectation of a late February, but there isn't anything wrong if it trickles into March but definitely, I would say people are going to expecting this before they complete their tax returns. The other one is do employees social insurance number need to be included on Form T2200? So, the answer to this is actually a yes and a no. I'll go with the no first. When you complete as an employer those six questions or six sections, you do not need a social insurance number. And that is the beauty of the form. And the reason, the science behind that or the method that CRA was doing this, was so that it provides an avenue for you to share this form electronically. They have electronic signature. They don't want to send anything to breach any sort of privacy or personal information. So, they've removed the need for social insurance numbers to be included. So, you do not need the social insurance number on the form. However, this is a form, the T2200 that you do not need to produce it to the CRA. You just need to keep it on file, but if, let's say the CRA requests that on a subsequent audit, then you can just complete your social insurance number by yourself and you already have the signed document, and you can produce it. That is just to kind of answer this question. Lawrence, can I ask you to take a few more?

Lawrence Levin: [00:49:33] Sure. Great. Okay. So, question seven who within an organization should be responsible to own this process of issuing Employee T2200s. Ed, was this the one you were going to talk about? I'm happy to talk to it.

Edward Rajaratnam: [00:49:51] Yeah, yeah, you can talk to it, but I can add something if you want to.

Lawrence Levin: [00:49:53] Yeah. So, I mean typically it's HR or Finance but what we do suggest is that there be some sort of mechanism by which whoever is completing this form, you know, can verify the employees circumstances, particularly as it relates to whether they were required to maintain a home office.

Edward Rajaratnam: [00:50:16] Yeah. And just to kind of add to what Lauren said, I mean, this is a form that is not like some sort of a CRA authorization form where they're going to kind of validate the person's signature, is the same that they have on file with CRA. That is not it is. It is something that part of a corporate governance decision that the company figures out that, okay, this person can sign. But like Lawrence explained internally, there has to be a mechanism for somebody to kind of validate that this is actually, something that is reasonable.

Lawrence Levin: [00:50:48] Alright. Question eight. Are employers actually required to provide Form T2100? It's a good question, actually. So, the question is, and just by way of background, the way the rules work is that the employee can claim, let's say, deduction for home office expenses, but in order to claim that type of deduction, various other employment deductions, the Income Tax Act says the employee's got to have the prescribed form, that's a T2200. So, it's important, for example, if the employee's filing their tax return, I always file mine on April 30th and I know it's late, but they actually have that form in hand. Right? So, the question is does the employer actually have to issue it? So, the CRA has been asked this question. There's actually no statutory obligation for the employer to issue this form. What the CRA has said is and they pointed out there's no actual specific rule in the Income Tax Act which said that it has to be issued, but what they've said is, well, you know, if the employer doesn't issue this, the employee can't claim that deduction. So, the CRA said it's our expectation that if the employee meets the conditions, the employer will issue the form, sort of suggesting that it's maybe a little bit of a shop practice, if you have an employee who meets the conditions and the employer refuses to issue the form. Okay. Question nine what liability might employers face if the employee did not meet the eligibility conditions to receive Form T2200? So, what are we talking about over here is sort of like maybe innocent mistakes, right? In a situation where an employer makes, knowingly makes a false statement on the form, there penalties for that type of thing, but I really doubt that would be the type of situation where the form, especially if it's for a home office expense. By the way, I actually just went back and I looked, I used the detailed method on my tax return, I think in 2021, and my deduction was around like $500. So, not actually a lot of money. Right? And I would think now, you know, for employees who have hybrid work, it's going to be even less because they're not working from home the whole time anyway. So, we're talking about relatively small amounts of money. Definitely, employers should never make false statements or never lie or anything. But in situations where there's, you know, some sort of innocent error right there doesn't really seem to be a specific provision in the act which would, you know, penalize the employee, you know, if they made, you know, reasonable efforts. And I'm not aware of a situation, and Ed I don't know if you are where an employer has been penalized, you know, for making, you know, reasonable efforts to complete a T2200. And it turned out that it was [INAUDIBLE]. Situations where the CRA has ordered an employee and denied the Home Office expenses, but it hasn't been because of the T2200. It's been because the employee couldn't provide support or the claimed expenses for which they were not eligible.

Edward Rajaratnam: [00:53:44] Thanks, Lawrence. Why don't I take question ten and kind of wrap it up if that is okay. So, question ten is, these updates have been released by CRA So late, and I'm tied up with payroll, busy season, and other work priorities. What should my next steps be? So, we intentionally put this question at the end, which came through from a few people. So, that is basically just to understand, okay, there's a lot of information. There are still some things to come. What should my next steps be? And I think the way to do it is maybe in a summary form. What should you do and take a proactive approach. And in summary of what we have been speaking about is number one, is to involve internal stakeholders. This is something new. There cannot be an expectation for everything to fall on your head and your time. It is about engaging other people. And then when the finalized form comes out, hopefully there are no changes, but that will be issued in late January. I mean, no changes from what we had shown you today. That will come in late January. Take time to actually go through the form to understand how these questions are going to be answered for you as an organization. And then based on that, based on all the stakeholders, what I would say is to develop a policy, based on all these discussions internally, discussions externally. What is leading practice? How are other companies handling this? And based on that, you assess and figure out what actually might work for you. What works for you may not work for another organization. So, still it has to be something tailored that meets the employee experience as well as the population that you're referring to within your organization. And then obviously you need to plan. What is the plan? How are you going to prepare these forms, and how are you going to issue it on a timely basis over the next few months? And then number five is to actually execute it. Do you need extra resources? Do you need to consult with external providers? Because at the end of the day, these are the three things that I think it is. There might be more support that you might need, but in a nutshell, what we have experienced is these are the things. It's employee communication, preparation of forms and the related distribution. So, this basically kind of sums up what you should be thinking of over the next few weeks. Again, our contact details, you can feel free to reach out to any of your EY advisors but if you have any questions on the way, we are helping our clients. These are the contact details that you have for both of us. And I want to kind of leave you to say that we are planning to have a follow up webcast. These webcasts, we are planning to have one in English and one in French. It's towards the end of the month because that is based on when we anticipate the CRA releases to come. However, this may be most likely tentative, but we will confirm that we will try to send an invitation to all those that have registered today. We know that we were at capacity today. If any of your colleagues were unable to make it to today's because of we were at capacity or because they had a different conflict, we will be sharing the recorded version for them to listen in, and hopefully they will be able to make the follow up webcast in a few weeks’ time. So, on behalf of Lawrence and I, and our entire EY team, thank you very much for giving us an entire hour of your busy weekday. We hope, sincerely, that this session was beneficial, and we look forward to being engaged with you over the next few weeks as well. Thank you very much.