You thought income taxes were complicated…then 2020 hit. Like most aspects of life during the COVID-19 pandemic, filing and paying this year’s taxes could be extra challenging. Changes to our work habits have created confusion about how or whether to apply certain tax deductions (home-office expenses, anyone?) and, more critically, the government relief payments many Canadians relied on during the crisis could leave them with a sizeable tax bill they weren’t anticipating.
It’s enough to make you want to crawl back into quarantine. But the tax-filing deadline will come whether we like it or not—and the better prepared you are before filing your tax return, the less stressful (and costly) the process will be. We spoke with accountant Ries Vahrmeyer, CPA, CA, of Steinbachs and Chapelle Professional Corporation in Niagara Falls, to find out what you need to know about your 2020 taxes, and what steps you can take now to avoid a surprise tax hit in the spring.
Pandemic relief payments
While the federal government’s pandemic benefit programs came as welcome relief to many cash-strapped Canadians, those payments are (unfortunately) considered taxable income.
In other words, if you received money from the Canada Emergency Response Benefit (CERB), Canada Relief Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), Canada Recovery Caregiving Benefit (CRCB), or Canada Emergency Student Benefit (CESB), you’ll have to report that income on your 2020 return, and likely pay taxes on it too (depending on your total income for the year). You should receive a T4A slip from the federal government early next year indicating the total amount of money you received in 2020. But if you don’t, check your CRA account online.
With the exception of CERB, all these benefit programs took income taxes off the top before issuing payment to recipients, which means you probably won’t owe much additional tax, if any, on those payments—unless you’re in a particularly high tax bracket. CERB, however, is a different story.
“With CERB, the taxes weren’t withheld, meaning the full amount you received will be taxable,” says Vahrmeyer. “It may be a bit of a shock for those who collected a fair bit of CERB and will now have to pay tax come April 30, 2021.”
So, how much money are we talking about? It all depends on your tax bracket, which is based on your total income for the year, says Vahrmeyer. But generally, he advises individuals to set aside 15% to 20% of all CERB payments for tax purposes.
Recipients of the CRB should be aware that they might have to pay back some of the benefits they received if their total income (outside of the CRB itself) exceeds a certain threshold. “Individuals are required to repay $0.50 (of the CRB) for every dollar over $38,000 in net income,” says Vahrmeyer.
And if you collected any kind of relief payments but shouldn’t have—whether intentionally or not—Vahrmeyer warns it could come back to bite you. You’ll not only have to repay those benefits, but also get dinged with interest.
How will the Canada Revenue Agency (CRA) determine whose payments were legit? It’s asked employers to include date ranges when reporting workers’ incomes on T4 slips this year, so they can check to see who was working while also collecting relief payments—often a no-no that disqualifies the benefits.
If you discover you were not eligible for CERB or other emergency payments you received, Vahrmeyer suggests paying back the money before December 31, 2020, to limit any interest charges.
One more note about the CERB and other pandemic relief payments: Because it counts toward this year’s taxable income, it could reduce some of the regular benefits you receive in 2021—such as the GST/HST credit, Ontario Trillium Benefit and Canada Child Benefit—which are based on your 2020 income.
Finally, there were a few one-time federal assistance payments in 2020 that are not taxable, including those issued in July to seniors eligible for OAS pensions and/or the Guaranteed Income Supplement (GIS), and a one-time payment for Disability Tax Credit (DTC) certificate holders. If you received any of this money, that’s one less worry for you at tax time.
Many employees who have been working from home during the pandemic are wondering if they can deduct work-related expenses on their taxes. The short answer is: Yes, if you meet certain conditions. For one, that means working from your home office for at least half of the year and using it exclusively for employment purposes (not for Zoom parties or toilet-paper hoarding). And two, your employer to filled out the T2200 form, which certifies that you aren’t being reimbursed for out-of-pocket costs and that the expenses are necessary for your work. Then, you can deduct eligible work expenses, including rent, hydro and office supplies.
“It’s not a change in the tax rules,” says Vahrmeyer; this form and the expense deductions were already available to employees who worked from home. However, he expects more Canadians to use the form this year to claim costs. Getting your hands on a T2200 is mostly related to your employer’s ability to administer the form. But if you’re worried your company isn’t going to survive, it’s worth pressing your manager and/or human resources department for the form, as it can’t be created after a business closes down.
Also, as MoneySense previously reported, there have been rumblings that the government might forgo the T2200 this year or shorten the form to make it easier to fill out, but right now, those are just rumours, says Vahrmeyer.
New tax deductions/credits
There are no new federal or provincial tax deductions or credits available to claim in 2020, says Vahrmeyer. But since some final provincial budgets, namely Ontario, have not yet been released, there’s still hope. Check back here every now and again, as we’ll update this article as new 2020 tax info is released.
Federal and provincial tax rates
Many people are expecting an increase in taxes to pay for Canada’s additional spending during the pandemic and have their eyes on both national and regional tax rates. But it’s like watching a kettle boil. “As of right now, no changes,” says Vahrmeyer. “But the government has incurred a lot of debt, so it’s reasonable to expect new forms of tax or higher income tax rates in general.” (MoneySense’s Jason Heath has some predictions.)
Filing and payment deadlines
For most Canadians, returns are due by Apr. 30, 2021. If you’re self-employed, the deadline is June 15, 2021, but you still have to calculate whether you owe taxes, and pay them, by Apr. 30.
In either case, if you owe money and miss the Apr. 30 deadline, you’ll be charged a late-filing penalty. (There’s no penalty for missing the deadline if you’re expecting a tax refund—but you should still try to file promptly to get your refund as soon as possible.)
In terms of tax payment deadlines, the good news is that you still have months to save up for any taxes owing. The bad news is, regardless of when you file, you must pay your outstanding tax balance no later than Apr. 30 (even you self-employed folks), or the Canada Revenue Agency will start charging you daily interest immediately.
“Penalties and interest have become a significant source of additional revenue for the CRA so be sure to stay compliant and file on time,” says Vahrmeyer.
While it’s possible the government may provide extensions on these filing and payment deadlines, as it did on our 2019 taxes, no announcements have been made thus far.
“We have not heard any word on extensions for 2020, so it’s status quo,” says Vahrmeyer. But he adds that taxpayers can ask to have penalty fees and/or interest charges waived or cancelled under certain circumstances, such as illness, inability to pay and financial hardships, by submitting form RC4288.
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