Tax season can be hectic even in the best of times, and the ongoing COVID-19 pandemic has certainly thrown a wrench into things. The Canadian government has issued a host of changes, taxes and new rules this year regarding ongoing government benefits and support and their effect on your taxes, how working from home will impact taxes, and so on. We’ve managed to speak to six tax experts during the busy season and find out for you what this all means. As always, consult one of these or another tax professional for the best possible advice during this most complicated of seasons.
How will benefits like the CERB affect your taxes?
On the first round of CERB, there was no withholding, do I owe what wasn’t withheld? Is the government going to provide any assistance with the amount that wasn’t withheld (like a deferral or forgiveness)
If you received the CERB or CESB, no tax was withheld when payments were issued. If you received the CRB, CRSB, or CRCB, 10% tax was withheld at source. For Quebec residents who received the CRB, CRSB, and CRCB, 5% of the tax withheld will be reported on the T4A slip and the other 5% will be reported on the RL-1 slip.
Keep in mind that these benefits are taxable and that you may owe no tax, owe tax, or be eligible for a refund when filing your return. It depends on all your sources of income you earned from all sources, deductions, and credits you are can claim in 2020.
If you or a family member received the Canada Emergency Response Benefit (CERB), you must include this income when filing your 2020 personal tax return. Each of the three new measures is subject to a 10 per cent withholding tax at source; however, you may still have to pay more tax, depending on your total 2020 taxable income.
- For employed and self-employed people who received the CERB, there is a $5,000 annual income requirement.
- In February, Ottawa announced that self-employed Canadians who had applied for the CERB based on their gross income, instead of their net, won’t need to pay it back.
CRB Repayment: If you received the CRB and your net income (excluding the CRB) is over $38,000, you must pay back 50 cents of every dollar of net income you earned above $38,000. For example, if you received $5,000 of CRB benefits during 2020, you would have to repay the entire amount if your net income was $48,000 or more. If your net income was, say, $42,000, you would have to repay $2,000.
If your net income (excluding CRB) exceeds $38,000, you may be able to reduce this figure by ensuring you are claiming all of the deductions from net income that apply to you:
- Registered pension plan (RPP) contributions
- RRSP contributions
- Union or professional dues
- Child-care expenses
- Alimony and maintenance payments
- Eligible moving expenses
- Investment carrying charges
- Business investment loss
- Employment expenses
- Repayment (“clawback”) of Old Age Security or other social benefits
Most of the above are amounts that are declared on tax-information slips or documented by receipts. Every dollar of RRSP contribution you made reduces your net income by the same amount.
YES, benefits are taxable. Your amount owing on these benefits will be based on your tax bracket, not on the benefits in isolation.
There are no plans from what I can tell for forgiveness. But, CRA has extended the payment deadline for those who received Covid assistance to April 30, 2022 (giving taxpayer an extra year to pay taxes on these benefits).
Any CERB benefits will be taxed as regular income at your marginal rate. So this means it will be added to any other income you had for 2020, including employment, investment, rental or self-employment income. Your tax rate will depend on your level of income. No, the government is not going to provide assistance in terms of paying the tax you may owe, however, they will provide interest relief on any taxes owing if you meet the eligibility criteria. Make sure to file your taxes on time, as late filing penalties will not be eligible for relief.
Do you think there will be a tax deadline extension due to COVID?
It is hard to predict what will happen. If there are further shutdowns in any cities or provinces, then it would be reasonable to expect a deadline extension but there is no way to know that now.
I am skeptical that there will be any tax filing deadline extensions due to the ongoing pandemic. Tax season is currently underway, so we would have heard about a deferral by now. The early 2020 lockdowns greatly disrupted last year’s tax season, but we anticipate everything is anticipated to run smoothly in 2021, notwithstanding COVID-19.
In my opinion, likely! Especially since CRA did lock down 100,000 or so accounts a few weeks ago as a precaution. This causes delays.
It would be very surprising if the government provides an extension to the deadline, especially considering the interest holiday they’re offering. There is really no reason to file your tax return late, even if you owe money. Besides, your debt doesn’t disappear if you don’t file a tax return.
What are some commonly missed tax deductions that you feel Canadians should know about?
If you were able to temporarily shift to a ‘work from home’ arrangement, you may be eligible to deduct certain home office expenses on your2020 personal income tax return. You will need to complete and sign a declaration (Form T2200S) issued by your employer to claim deductions for home office expenses. Alternatively, as an employee you can opt to claim up to $400 for the 2020 tax year without your employer having to issue Form T2200S, based on CRA eligibility requirements.
Educator expense for early childhood educators and teachers, medical expenses which can include glasses and a chiropractor, as well as the Disability Tax Credit.
One deduction often missed is moving expenses. Sadly, not many people realize that the CRA allows you to deduct expenses you incurred to move closer to your new workplace or university. Of course, there are conditions, the biggest being that the move allows you to be 40KM closer to your new workplace or university. For many Canadians, the 40KM condition is not hard to meet if they move from a rural area to an urban area, or vice-versa.
Another one is the retroactive claim of the disability tax credit. For example, if certified under the proper form by a medical practitioner as disabled, a taxpayer can claim this non-refundable tax credit on their tax return to reduce their tax payable. What many Canadians don’t realize is that if the medical practitioner certifies that the taxpayer has been disabled for several years prior to the year the form is submitted, you can adjust your prior year tax returns and claim this amount for those prior years retroactively.
With so many working from a home office these days, what counts as deductible while working from home?
Is the T2200 form the right one to use? Who fills it out, me or my employer?
CRA allows all employees who worked from home during the COVID-19 pandemic in 2020 to claim up to $400 in employment expenses as a flat rate. This amount is a tax deduction and not a credit, which means you deduct it from your income to reduce your tax liability but will not result in a refund.
Regular employment expenses for salaried and commissioned employees have to be approved by the employer by signing the T2200 “Declaration of Conditions of Employment” form. For 2020 taxes, CRA allows employees to claim up to $400 in expenses without a signed T2200 from the employer. You will need to fill the new T777-s “Statement of Employment Expenses for Working at Home Due to COVID-19” form to claim the deduction.
To be able to use this method, you:
had to work more than 50% of the time at home for one month or more
need a completed and signed T2200-s Declaration of Conditions of Employment for Working at Home Due to COVID-19
have to keep supporting documents in case CRA requests them
cannot claim any expenses that have been reimbursed by your employer
You will need the following information to complete this method:
- List of all the expenses (other than the use of home) such as office supplies, cellphone usages, etc. on lines 1 and 2 of the T777-s
- The percentage of space used for work in relation to the total home space (if you use one room in a 5 room house, your workspace is 20% of the total space)
- List of expenses that relate to the use of the home office such as utilities, rent, maintenance, property taxes, etc. on line 6-10 of the T777-s
COVID-19 relief measures are taxable income. When calculating your eligibility for the program or any potential clawback, it’s important to ensure that you follow the Income Tax Act in preparing your income tax filings.
This depends on whether you are a commissioned employee or not. The most common expenses are utilities, internet and cell phone. Use the special COVID form this year, unless you’ve used the previous version in the past. Your employer fills it out.
The flat rate deduction
In late December, the Federal government announced a more simplified way of claiming home office expenses through the temporary flat rate method.
You can only claim this new deduction if you worked more than 50% of the time from home for a period of at least a month (four consecutive weeks) in 2020 due to COVID-19. You can claim $2 for each day that you worked at home during that period, plus any other days you worked at home in 2020 due to COVID-19.
The maximum you can claim under the flat-rate method is $400.
Can I claim my actual home office expenses instead?
Yes, you can choose between the temporary flat rate method above, and what the CRA now calls the detailed method. You choose whichever one is more beneficial to you.
Under the detailed method, eligible expenses include rent, electricity, heating, maintenance (minor repairs, cleaning supplies, light bulbs, paint, etc.), telephone long distance charges, property taxes, and home insurance. Expenses related to ownership of a house, such as home insurance and property taxes are deductible for commission income employees only.
The eligible expenses above are claimed on a prorated basis based on your workspace use.
In order to use the detailed method, your employer has to complete the T2200S form and give you a copy, confirming that you must work from home. The deduction itself is claimed on the same form as the flat rate method, the T777S form.
How should I treat government support money if money is not withheld for taxes?
Treat them as taxable income and report them on your tax returns.
I would bank/set aside at least 10% for taxes.
The best option, if it is possible considering your finances, is to save some of the amounts received on the side (ideally at least 10%). This way you will be better prepared when you will have to pay your taxes lump sum on these amounts.
Whether you saved those funds to the side or not, one thing I recommend is filing your tax return on time. Even if you owe money, you don’t want to compound the problem by filing late and having the CRA charge you a penalty. Your debt doesn’t vanish by not filing your tax return.
If you still have income tax questions, speaking to a professional is essential, especially with all the changes this year. Take note of all the deductions available to you and don’t forget that you may still have to pay taxes on any government support money you received. Lastly, If you could use some financial help, call us at (844)-402-3073 to discuss credit counselling and other options.