The Lowdown on Taxes during COVID-19
2020 was a year of immense change – and taxes were not immune. From government benefits for those who lost jobs or experienced reduced hours to small business loans and the shift to working from home, there aren’t many people whose tax filings won’t look different this year.
As April 30 fast approaches, we’ve summarized some of the most common changes to help you prepare.
Declaring Income from EI, CERB, CESB, CRB, CRSB & CRCB
If you are one of the millions of Canadians who received government benefits related to COVID-19 last year, you will need to declare the amount you received as income on line 13000 of your 2020 tax return. You will receive either a T4A (from CRA) or a T4E (from Service Canada) slip, which provides the full amount to be declared.
If you have not received either of these slips yet, you can access them online through the CRA’s My Account.
Simplified Home-Office Expense Deduction
If you paid for work expenses while working from home, you may be eligible to claim a deduction. The CRA has simplified the process for claiming these expenses on your income tax return by introducing a new temporary flat rate method. This simplified method does not require you to submit any supporting documents to track your expenses.
You are eligible to use the method if you worked from home more than 50% of the time for a period of at least four consecutive weeks due to COVID-19. You can claim $2 per each day that you worked from home, up to a maximum of $400 on Form T777S. Days off, vacation days, sick leave days, or other absences do not count when claiming this deduction.
If you would like to claim more than the $400 maximum, you can use the detailed method for calculating home office expenses, which requires obtaining Form T2200S from your employer. The CRA has provided a comprehensive list of eligible home office expenses to help you calculate expenses using this detailed method.
Federal Basic Personal Amount Change
The basic personal amount (BPA), which ensures that no tax is paid on a certain amount of income, was increased in 2020 from $12,298 to $13,229 for the benefit of those in lower income tax brackets (net income of $150,473 or less).
Canada Training Credit
Another change that was actually announced pre-pandemic, but one that might be helpful after the disruption of 2020, is the Canada Training Credit. This credit allows you to claim up to $250 for eligible tuition and other fees paid for courses taken in 2020, and accumulates every year up to a maximum of $5,000. You must be between the ages of 26 and 66 in the tax year to be eligible.
Tax Planning Opportunities for 2021 & Beyond
Although it’s important to file your taxes correctly and on time, it is arguably even more important to plan for the year ahead so that you do not end up paying more taxes than necessary – especially as we recover from the pandemic.
While every individual has a unique set of needs and wants that should be discussed with an accountant and financial advisor, there are some general rules of thumb to help reduce your tax impact. For example, taking full advantage of your registered accounts early in the year can have astronomical impacts over time when coupled with the advantages of compounded growth. Take a look at this recent blog post for a more detailed explanation of the benefits of investing in your RRSP.
Whether you are an individual or a business owner, there are a number of strategies that can be used to reduce your tax impact and ensure your money is working for you. Contact us if you are interested in learning more!
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Information in this article is from sources believed to be reliable, however, we cannot represent that it is accurate or complete. It is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell securities. The views are those of the author, and not necessarily those of Raymond James Ltd. Investors considering any investment should consult with their Investment Advisor to ensure that it is suitable for the investor’s circumstances and risk tolerance before making any investment decision. Raymond James Ltd. is a Member - Canadian Investor Protection Fund.