COVID-19 and Tax Filing

If you haven’t already – file those 2020 taxes and figure out where you stand!

Coming off a pandemic, being allowed to travel and see family again…there are so many other priorities this year for our clients BESIDES filing their taxes! This is creating some stress and havoc for clients when they want to purchase a home. Normally, salaried employees would just be required to produce a job letter and paystub to secure a mortgage, but with the variability in income over 2020 and early 2021, lenders are seeking more clarity about how the pandemic affected your income.

In this blog post, we’re doing 2 things.

1. Reminding you to get those taxes filed ASAP because your mortgage broker is going to ask for your T1 General and Notice of Assessment for 2020
2. Reminding you that there were some programs available this year that should be included in your tax return.

For individuals, tax returns were due on April 30, 2021. Anyone self-employed or the partner or spouse of someone self-employed had until June 30, 2021. But, you’re late now as well!

Filing your 2020 tax return

With physical distancing in place, the Canada Revenue Agency (CRA) encourages you to file your tax return online to receive any refund in which you may be eligible. This way, you have a better chance of receiving your refund faster, avoiding delays, and reducing possible exposure to Covid-19. If you signed up for direct deposit when filing online, you could expect to get a refund in as little as ten business days.

You can sign up for the CRA’s My Account, to view and manage your tax and benefit information online. If you prefer to go the paper route, the CRA will mail you the 2020 income tax package.

Government Benefits

If you are one of the million Canadians that received Covid-related government benefits in 2020, you will need to report specific amounts from these benefits on your 2020 return. These include:

• Canadian Emergency Response Benefit (CERB)

• Canada Emergency Student Benefit (CESB)

• Canada Recovery Benefit (CRB)

• Canada Recovery Sickness Benefit (CRSB)

• Canada Recovery Caregiving Benefit (CRCB)

All these benefits are considered taxable income and should be indicated on Line 13000 – “Other income” when filing your taxes.

You may owe tax on any of the above-listed benefits, depending on your 2020 income. This specifically goes for CERB or CESB, since no tax was withdrawn when payments were distributed. For benefits CRB, CRSB, CRCB, 10% tax was withdrawn from payments made. However, this may not be enough to cover taxes eventually owing on those benefits.

Repaying Benefits

You may have received CERB or CRB and then returned all or part of the amount if you ended up not being eligible. As long as the amount was returned by December 31, 2020, then it does not need to be included in your 2020 return. Most likely, you should not receive a T4A for any amounts produced by this date.

If you return a benefit in 2021, you will need to pay tax on the total amount you received in 2020. If your net income was over $38,000, you might have to repay 50% of CRB benefits for every dollar in the net income you earned above $38,000.

Business Benefits

If you are self-employed, you may have received a loan through the Canada Emergency Business Account (CEBA.) The CEBA provides loans that are interest free of up to $60,000 to businesses to help cover their operating costs. A $20,000 amount from a $60,000 loan can be forgiven if the balance is repaid by December 31, 2022. Make sure that you set a calendar reminder for this one – you’d hate to owe the $20,000!

Targeted Interest Relief

Targeted interest relief will made available if you received Covid-19 related benefits. If you meet the eligibility requirements, you will get interest relief on your 2020 taxes owing.

The eligibility requirements include your total 2020 taxable income was $75,000 or less and did receive income support through one or more of the Covid-19 benefits.

Suppose you fall into this category and decide not to pay the income tax owing. In that case, you need to file your return, and the CRA will automatically apply the interest relief measures for taxpayers who meet these standards. However, you must pay the deferred income tax by April 30, 2022, to not gain interest on the income tax debt.

Home office expenses

If the employer does not reimburse an employee who is required to pay for employment expenses, including a home office, they may be able to claim a deduction on their return for such costs in 2020. This makes it easier for employees who have been working from home because of Covid-19. There are two methods in which claiming home office expenses:

• Temporary flat rate method: If you worked from home for the required four-week period due to Covid-19 and did not choose to do this, you may be eligible. This method requires you to claim $2 for each day you worked from home, up to a maximum of $400 per individual. That calculates $2 per day for up to 200 working days. What is satisfactory about this method is that you do not have to track and keep any supporting documents to track your expenses.

• Detailed method: With this method, you must have worked from home for the required four-week period. This includes you have chosen to work from home, and alternately, your employer could have required you to work from home, whether it is Covid-19 related. The necessary conditions include that you must have worked from your home space more than 50% of the time, and you must use it exclusively for work purposes. You must also complete and sign Form T2200S from your employer, but you do not need to attach this form to your tax return.

Which is the best method?

The $2 per day temporary flat rate method may not seem like a lot to claim as a home office expense, but for individuals who own their home rather than rent, it is likely a better choice and not to mention simpler.

If you go with a detailed method, you can deduct a set of expenses, such as rent, electricity, heating, internet access, and repairs and maintenance. Employees who are commission-based can deduct home insurance, property taxes, and leasing costs associated with a cell phone, laptop, tablet, printer, etc., that relates to a commission income. However, you can only claim the portion of the expense that can be reasonably distributed to employment use. For rent and other costs, for example, you need to distribute these on a “reasonable basis”. This is usually done by taking your workspace area and dividing it by the total finished room of your home. Examples are hallways, kitchens, living rooms, etc.

New Credits for 2020

The Enhanced Basic Personal Amount (BPA): is a new mechanism used to ensure that no tax is being paid on a certain amount of basic income. For 2020, the enhanced BPA increased to $13,229, which is $1,000 over from 2019. This is the maximum amount given for individuals with a net income of $150,473 or less. This is gradually decreased for individuals with net revenues between $150,473 and $214,368. If your net income exceeds $214,368, the increased amount will not apply to you, and your BPA will remain the same as it was in 2019, which is $12,229.

Digital news subscription credit: This new credit allows you to claim a federal non-refundable amount of 15% for up to $500 for amounts you paid in 2020 for qualifying subscription expenses. The charges you paid must be to a qualified Canadian journalism organization. This deduction will on Line 31350 of your return.

Canada training credit: A refundable tax credit which started in 2019, lets eligible individuals accumulate $250 per year to reach a maximum of $5,000 after 20 years. This credit can be claimed for certain tuition, education, and other fees. If eligible, you can claim the lesser amount of the tuition and other fees paid, up to your limit for the year. The maximum limit for the 2020 tax year would be $250. The CTC limit will be available on your notice of assessment, as well through CRA’s online My Account portal.