Everything you need to know about COVID-19 and your taxes, explained
TORONTO -- As tax season approaches, Canadians are faced with filing for an unprecedented year - job losses, federal financial aid and working from home are just some of the major adjustments made over 2020.
The Canada Revenue Agency (CRA) has listed all the deadlines for the 2020 tax year on their site.
April 30, 2021, is both the filing and payment tax deadline for individuals.
PREPARING TO FILE
Experts say that this year’s tax returns could look very different than what Canadians are used to – and to plan accordingly.
“I think for millions of Canadians, this might be the first time that they could actually owe money when they file their tax return,” said Managing Director, Tax and Estate planning at CIBC Private Wealth Management Jamie Golombek, in a telephone interview with CTVNews.ca Wednesday. “People are so used to getting a tax refund and this year could be different because they've received all these benefits in many cases, haven't paid tax on it.”
Golombek said due to the nature of lockdowns and stay-at-home orders, there will be “a lot of virtual tax preparation going on.”
“If people are doing it at home via computer, whether people are sending stuff in virtually to a tax preparer or accountant, you've got to deal with the online environment for preparing a tax return,” he said.
Vice President and Director of Tax Consulting Services for BMO Wealth Management John Waters said his “big mantra” around tax season is preparedness.
“It really is, or should be a year-round process,” he said in a telephone interview with CTVNews.ca Thursday. “I'm a big proponent of just being aware of what's happening in the tax world year round, last year is a perfect example, there were so many things that were happening because of the pandemic and a lot of the government relief programmes being introduced.”
Waters said it’s important to keep on top of federal and provincial COVID-19 benefits being rolled out and asking “is that relevant to me? Is that something that I can apply for? What are the tax implications of that? Should I be putting money aside to pay for that?”
And like most tax years, experts say it is better to be early – especially with the added paperwork Canadians may face with COVID-19 benefits.
“Be well organized in your invoices and go see your local tax expert as soon as possible. Don't wait until the last minute,” said Senior Tax Expert Josee Cabral of H&R Block in an email to CTVNews.ca Thursday.
Canadians can start electronically filing their 2020 tax returns starting on Tuesday, Feb. 23.
PAPERWORK TO WATCH FOR
Individuals filing their taxes are familiar with the T4 tax form, but tax partner at Toronto’s Crowe Soberman LLP Silvia Jacinto said this year there are some changes to the T4 to be aware of, and additional tax slips to watch out for.
“If you are an employee and you were not furloughed or you continued to work through 2020, your T4 will look a little different. There are some additional boxes that will be populated in your 2020 form, and those are really for information purposes for CRA, because if your employer took advantage of any of the wage subsidy programmes in 2020, those would have been applied for on a period-by-period basis,” she explained.
Canadians who have been receiving their benefits through the online CRA “My Account” system will have an auto-fill component for most of their tax forms, otherwise they may be stuck filling them out manually if they file their own taxes.
If you received benefits through the CRA, “you're most likely going to receive a T4A slip from the government,” she said, where as If you received money from Service Canada, such as Employment Insurance benefits or CERB payments that were not processed by the CRA, you will see a T4E slip, which you must fill out and include.
WORKING FROM HOME
One of the biggest adjustments Canadians have made since March 2020 is working from home.
Canadians who have worked from home more than 50 per cent of the time for at least four consecutive weeks have two ways to claim it on their tax return, Cabral explained in her email to CTVNews.ca.
A manual “detailed” account individuals calculate themselves, or the governments’ pandemic flat-rate method.
“If you opt for the temporary flat-rate method, it's pretty simple,” Cabral said. “You can deduct $2 for each day you worked from home, up to a maximum of 200 days and a maximum of $400.”
The flat-rate method does not need any forms from an employer to be used.
However, if an individual is certain they would be entitled to more than $400, or they are self-employed, the detailed method must be used.
“If you decide to choose the detailed method, it is important to note that your eligible expenses are prorated based on their use for business purposes,” Cabral explained. “If it's half personal and half business, you can deduct 50 per cent of the amount of each invoice for the months you were working from home.”
Golombek broke it down even further.
“If you use the detailed method, you actually calculate the expenses associated with working from home prorated based on the square feet of the space that you're using, divided by the total square feet of your home. In addition, if you have a shared space, like using the kitchen table or the dining room table, which presumably you eat in, or you do something else with that room, you're also supposed to prorate based on the hours.
If you're a homeowner, Golombek notes that your biggest expense - your mortgage - isn't eligible, nor is your property tax.
"So it's only the prorated portion of your utilities, things like electricity, heating, and internet that are eligible. If you're a renter, you could include a pro-rata portion of your rent," he said.
The CRA has an online tool to help calculate work from home expenses for the detailed method, which also requires a signed T2200S form from an employer and a filled out T777S form when filing a return.
Employees who are claiming other employment expenses (for example motor vehicle expenses) or who did not work from home in 2020, cannot use the new temporary flat rate method, according to a statement emailed to CTVNews.ca Thursday by a CRA spokesperson.
These employees must get a completed and signed Form T2200, Declaration of Conditions of Employment, from their employer and fill out Form T777, Statement of Employment Expenses.
Golombek also flagged that 2020 marked a massive year for Canadians working in the gig economy, such as driving for Uber for delivering for apps like Skip the Dishes.
“This is the first time in their life that they have self- employment income. They're going to have to file a special form when they file their return statement and business activities and they're going to be able to deduct certain expenses…if this is a side hustle for some people, I think that could complicate matters a little bit,” he said.
CERB, CESB, CRCB, CRSB, CEBA AND CEWS
The COVID-19 emergency and recovery benefits administered by CRA – Canada Emergency Response Benefit (CERB), Canada Emergency Student Benefit (CESB), Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB) - are considered taxable income.
This means some recipients may owe tax when they file a return, depending on their personal circumstances, the type of COVID-19 emergency benefits received, other sources of income, deductions and credits, according to the CRA.
Prime Minister Justin Trudeau announced Feb. 9, that the CRA won’t charge people interest on overdue taxes from benefit programs for at least one year.
Interest on income taxes will be waived until April 30, 2022, according to the CRA, but individual’s need to earn less than $75,000 in total taxable income to qualify for the relief.
“I recommend saving $400 for every $2,000 received,” Cabral said. “The exact rate will vary depending on the where you live and how much money you made for the entire year, but it's a conservative amount to save to be on the safe side.”
Cabral urged Canadians who are unable to pay their taxes owing on federal benefits to contact the CRA and ask for an instalment payment agreement, which allow them to spread their debt payments between now and April 2022.
Small business owners who took advantage of the Canada Emergency Wage Subsidy (CEWS) or the Canada Emergency Business Account (CEBA) interest-free loans, should also be vigilant when filing paperwork, said John Swain, owner and president of Swain Chartered Professional Accountants Inc., of Halifax, Nova Scotia.
“Folks might not realise that the income is actually reportable in that recording period, not necessarily when you receive the money,” Swain said in a telephone interview with CTVNews.ca Thursday.
“For example, if I’ve had a year-end and later on I decide I'm going to go ahead and do a claim for a couple of months of the wage subsidy, and I received that that funding from the government, that income actually belonged on the year end that would have just passed.”
For CEBA, a similar concept applies, Swain said.
“There's a forgivable portion, if the loan is repaid prior to Dec. 31, 2022, but that forgivable portion is actually considered income at the same time we receive the proceeds from CEBA - not when it's actually forgiven,” he explained.
“That’s one of the things that might sneak up on people.”
TAX CREDITS TO WATCH FOR
Tax experts say it is important to watch out for credits and deductions Canadians may qualify for, even if they do not have anything to do with COVID-19.
“If you are a first time homebuyer and you used your RRSP to buy your home, there is a credit that's available in addition to being able to take $35,000 out of your RRSP to make that purchase,” Jacinto said, adding that there are adoption expenses tax credits and working tax benefits also available.
Golombek highlighted the new credit available in 2020 for Canadians who have a digital news subscription, where they can “claim a 15 per cent credit for up to five hundred dollars“ they paid for a qualifying digital news subscription to any Canadian journalism organisation. Broadcast news is not included.
There is also the Climate Action Incentive for Canadians living in Alberta, Saskatchewan, Manitoba or Ontario that is meant to help reduce your tax or give you cash to offset the cost of carbon tax in provinces that don’t have a carbon pricing scheme of their own. The tax credit will vary depending on family size, and can only be claimed by one individual per family.