This article appears in the March 2021 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.
This year’s tax season will be challenging, particularly for clients who received Covid-19 benefits. Here are tips for the month ahead.
As of press time, the deadline to file the 2020 income tax return remains April 30 (June 15 for the self-employed). Last year, Canadians were given an extension to June 1, with a payment deadline of Sept. 1; to date, no extensions for the 2020 tax season have been announced.
With physical distancing still expected to be the norm in much of Canada this filing season, the Canada Revenue Agency (CRA) is encouraging Canadians to file their tax returns online to get any eligible refunds faster (potentially within eight business days) and reduce exposure to Covid. Last year, the CRA received approximately 90% of tax returns electronically.
Reporting Covid benefits
Millions of Canadians received Covid-related government benefits in 2020 that must be reported, including the Canada Emergency Response Benefit (CERB), the Canada Emergency Student Benefit (CESB), the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB) and the Canada Recovery Caregiving Benefit (CRCB). These are all considered taxable income and should be reported on Line 13000 – Other income.
The government has mailed out a T4A (for benefits issued by the CRA) and/or a T4E (for benefits issued by Service Canada) tax slip with the information clients need to complete their tax return. The slips can also be viewed online in the CRA’s My Account portal.
Each Covid benefit has its own box number (Box 197 to 204) on the T4A slip. If someone received more than one benefit in 2020, they can confirm that the amounts are correct using the CRA’s My Account.
The government also delivered a number of one-time payments in 2020, including a GST/HST credit payment, OAS pension ($300) and GIS payments ($200), and payments to people with disabilities (up to $600). These are all tax-free and should not be reported on the 2020 return.
Some clients may owe tax on their Covid benefits, such as the CERB or CESB, since no tax was withheld when those payments were issued. Clients who received the CRB, CRSB or CRCB will see that 10% tax was withheld at source, but this may not be sufficient depending on their other income. They can find the income tax deducted at source in Box 022 of the T4A slip, which should be included on line 43700 – Total income tax deducted.
Clients whose 2020 net income was over $38,000 may have to repay 50% of CRB payments for every dollar in net income they earned above $38,000, to a maximum of the CRB received in the year. Net income for this purpose is line 23600 of the T1 return (with some minor adjustments), and includes any CERB, CRSB and CRCB payments received (but not payments received through the CRB).
As I discussed in last month’s column, employees who paid employment expenses — including expenses for a home office — for which they weren’t reimbursed by their employer may be able to claim deductions. The CRA announced two methods for claiming home office expenses for 2020: the new “temporary flat-rate method” and the “detailed method.” Clients must have worked more than 50% of the time from home for at least four consecutive weeks in 2020 due to Covid to claim home office expenses.
Under the flat-rate method, clients can use Form T777S to claim $2 for each day they worked from home, up to a maximum of $400 ($2 per day for up to 200 working days). They don’t have to track expenses, keep supporting documents or allocate expenses between employment and personal use, and they don’t need a signed Form T2200(S) from their employer.
Under the detailed method, clients need a completed and signed Form T2200(S) from their employer. This method allows clients to deduct a variety of expenses, such as a portion of the cost of rent, electricity, heating, home internet access fees, water, and maintenance and minor repair costs. Commissioned employees can also deduct the cost of home insurance, property taxes and leasing costs for certain equipment. (Mortgage interest and capital expenses or depreciation are not deductible, including the cost of furniture or computer equipment.)
Advisors can point clients to the CRA’s online calculator to help them calculate their 2020 home office expense deduction.
Jamie Golombek, CA, CPA, CFP, CLU, TEP, is managing director, tax and estate planning, at CIBC Private Wealth Management in Toronto.