Taking on the CRA: Jamie Golombek shares his own fight with the taxman

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I never got my day in court, but I came awfully close.

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I was has been fighting the tax officer for more than a year in an attempt to get the Canada Revenue Agency to allow my work from home expenses for the 2020 tax year. That battle ended last week when I received a reassessment that allowed almost all of my home office expenses, refunded my overpaid taxes, reversed the late payment interest previously charged, and even paid me some repayment interest (albeit taxable).

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I’m giving you my full story so you know what to expect if you decide to do the CRA too.

The origin of my tax dispute can be traced back to March 12, 2020. I had Toronto Maple Leafs tickets to the game against the Nashville Predators that night, and my son was supposed to meet me downtown for the game after work. But things would change dramatically: That afternoon, the The NHL suspended all games due to COVID-19 and our offices were closed for many months that evening.

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On March 13th I started working full time from home using a spare room as my new office. I deducted some home office expenses for the first time in my career when I filed my 2020 tax return.

Employees working from home due to the pandemic have two methods to claim work-from-home expenses: the temporary flat-rate method ($2 per day, up to $500 in 2022) and the detailed one Method by which employees aggregate actual expenses incurred and allocate them on a “reasonable basis” to determine the portion that relates to employment use. This is usually done by dividing the workspace by the total finished square feet of the home (including hallways, bathrooms, kitchens, etc.).

Expenses include utilities, home internet, rent, maintenance and minor repairs, and office supplies. You can’t deduct mortgage payments, capital costs, or depreciation (capital cost allowance), and only employees working on a commission basis can deduct their property taxes and home insurance.

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In my case, the detailed method proved to be the better option, but it meant that every single expense had to be accounted for in case the CRA wanted to “verify” my return, which they did.

In August 2021 I received a Review Letter from the CRA Asking for more information on various items upon my return, including my application for the Digital News Subscription Tax Credit, evidence that I have made a small political contribution, and most importantly, support for my application for expenses related to the work of at home.

The CRA wanted a copy of my signed T2200 Terms of Employment Statement and a “detailed breakdown of the amount claimed and supporting documents”. It also asked for a copy of my T777, Statement of Employment Expenses, and a breakdown of how I calculated the percentage of deductible expenses and “a copy of the floor plan of the apartment with home office”.

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I didn’t have a copy of my apartment floor plan, but I was fairly conservative in my estimate, charging less than 10 percent of my total apartment cost for the use of my home office. I created a detailed plan of my monthly water, gas and internet bills, complete with dates and amounts, by downloading information from my online banking.

Unfortunately, this was not enough to justify my claim. My $75 digital news credit and political donation were approved, but my home office expenses were denied entirely because I didn’t appear to have submitted sufficiently detailed information to support my claim. This was confirmed in a formal reassessment in January 2022.

I paid the 2020 reassessed tax to prevent daily compounding of non-deductible late payment interest and filed a formal notice of objection in February 2022. I have sent the CRA PDF copies of all my 2020 monthly statements from each utility provider with a total of 89 pages of documentation to justify my claim. And then I waited. And waited.

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Periodically I went online to CRA’s My Account page and check under the progress tracker if any action has been taken. Finally, after several months, the status was updated online: A preliminary check of my appeal was carried out and it was found that “medium complexity.”

Medium complexity income tax objections resolved in August 2022 were resolved in an average of 283 days from the date the objection was filed. This was taking too long for me, so I exercised my right to appeal directly to the Tax Court, which is possible 90 days after filing a notice of appeal if the CRA has not responded by then.

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In late May 2022, I filed my appeal and was told that my case would be heard in Toronto “at the earliest opportunity”. I was excited and confident. But apart from a couple of speeding tickets in the 1990s, I had never been to court, so I had to prepare. I rewatched 12 Angry Men and My Cousin Vinny. I was now ready for the dish.

But my day in court wasn’t supposed to be. Shortly after filing my complaint, I received a call from a friendly CRA litigation officer who said he had reviewed my file and was willing to cover all of my work from home expenses except for $99. Dollar. I quickly agreed.

A week later he had me sign a consent to the judgment, which was later upheld by a judge in the Finance Court. On September 14th I received my new reassessment notice along with a direct transfer of my tax refund and interest.

I[…]really was I look forward to my day in court. Maybe another time.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is Managing Director, Tax & Estate Planning at CIBC Private Wealth in Toronto. [email protected]

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