The 2020 tax filing season will be one of the most unusual and complicated on record, as taxpayers across the country assess and account for the numerous ways in which COVID-19 has altered their financial lives. From government subsidies and credits to unexpected fluctuations in employment income to the massive shift to work from home, almost everyone will have something new to confront in their filings this year. While the 2020 tax season doesn’t officially launch until Feb. 22, 2021 — the date on which the Canada Revenue Agency will start accepting electronically submitted income-tax returns — now is the time to start gearing up. With that in mind, here’s everything you need to know to file your taxes in the age of COVID.
Firm deadlines, or another ‘never-ending tax season’?
As of this week, the deadline to file your income tax return remains at April 30, 2021. Self-employed taxpayers (and their spouse or partner) have until June 15, 2021. Last year, Canadians were given an extension to file their 2019 returns until June 1, 2020, with a payment deadline of Sept. 1, 2020 but, to date, no extensions for the 2020 tax season have been announced. CPA Canada has raised the issue of tax deadline extensions with the CRA and their discussions are ongoing.
Earlier this week, consultancy firm Cadesky Tax published preliminary responses from an online survey it conducted among over 500 CPAs in the greater Toronto area, which found that most accountants believe that an extension is needed. A minority objected, believing their clients will just delay and this year will become “another never-ending tax season.”
Managing partner Michael Cadesky said that the CRA is aware of the industry’s concerns and fully expects that a reasonable solution will be announced at some point. “Nobody benefits if the tax filing season becomes chaotic, which must be avoided,” says Cadesky.
Social distancing — another reason to file online
With physical distancing still expected to be the norm in much of Canada this filing season, the CRA is encouraging you to file your return online — that will allow you to get any refund for which you may be eligible faster, avoid delays and reduce your potential exposure to COVID. If you file online and you’re signed up for direct deposit, you can get your refund in as little as eight business days. Last year, the CRA received approximately 90 per cent of tax returns electronically.
You can also sign up for the CRA’s My Account, to view and manage your tax and benefit information online. Still prefer paper? If you filed a paper return last year, the CRA will mail you the 2020 income tax package by Feb. 19, 2021, though they advise the package may arrive later due to COVID delivery delays. You can view and download (or order paper copies of) the income tax forms and schedules online.
Booking CERB and other benefits
If you’re one of the millions of Canadians that received COVID-related government benefits in 2020, you need to report most of these amounts on your 2020 return. Reportable amounts include: the Canada Emergency Response Benefit (CERB), Canada Emergency Student Benefit (CESB), Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB), all of which are considered taxable income and should be reported on Line 13000 – Other income.
Keep an eye out for these tax slips
You will receive a T4A (for benefits issued by the CRA) and/or a T4E (for benefits issued by Service Canada) tax slip in the mail with the information you need for your tax return. The CRA began mailing the slips last month and indicated that you should receive your T4A slip before March 10, 2021. You can also view these tax slips online in the CRA’s My Account. Residents of Quebec will also receive an RL-1 and/or T4EQ slip for their Quebec tax returns.
Each COVID benefit has its own box number (Box 197 to 204) on the T4A slip. If you received more than one benefit in 2020, you can confirm that the amounts are correct in the “COVID-19 Support Payment Application Details” using the CRA’s My Account.
The tax-free, the taxable, the withheld and the repayable
The government also delivered a number of one-time payments in 2020, including a one-time GST/HST credit payment, the one-time OAS pension ($300) and GIS payments ($200), and a one-time payment to persons with disabilities (up to $600). These amounts are all tax-free and should not be reported on the 2020 return.
Depending on your total 2020 income, you may owe some tax on your COVID benefits. This is particularly true if you received the CERB or CESB, since no tax was withheld when payments were issued, so there may be a balance owing when you file.
If you received the CRB, CRSB, or CRCB, 10 per cent tax was withheld at source, but this may not be sufficient, depending on what other income you earned in 2020. You can find the income tax deducted at source in Box 022 of your T4A slip, which should be included on line 43700 – Total income tax deducted.
In addition, if your 2020 net income was over $38,000, you may have to repay 50 per cent of CRB payments for every dollar in net income you 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.)
Jennifer Gorman, Social Care Manager for TurboTax Canada, says that if this is your first year facing a balance owing, you want to make sure you file by the deadline, even if you don’t have the cash to pay. “There are two separate penalties. You have interest that accrues if you don’t pay your balance, but there’s also a late-filing penalty,” explains Gorman. The late-filing penalty is five per cent of your balance owing, plus one per cent of the balance owing for each full month your return is late, to a maximum of 12 months.
Where to claim your side hustle
A recent survey by tax preparation giant H&R Block found that one quarter of the Canadian gig economy workforce joined the gig economy for the first time in 2020, working for companies like Uber, Skip the Dishes, Instacart and TaskRabbit. According to the survey, 51 per cent of people who joined the gig economy in 2020 will be filing as self-employed for the first time.
Self-employment income is reported on CRA Form T2125, Statement of Business or Professional Activities. Depending on your level of earnings, you may also have to contribute to the Canada (Quebec) Pension Plan.
Lisa Gittens, Senior Tax Expert at H&R Block, says that if you use tax software to prepare your own return, it’s important to answer the questions correctly so that the right forms open up. “You don’t want to be trying to claim your Uber ride-sharing income on a rental form,” said Gittens.
Working from home: $400 the easy way
If you were required to pay for employment expenses, including expenses for a home office, for which you were not reimbursed by your employer, you may be able to claim a deduction on your 2020 return for these expenses. The CRA announced two methods for claiming home office expenses for 2020: the new “temporary flat-rate method,” and the “detailed method.”
You’re eligible to use the flat-rate method if you worked more than 50 per cent of the time from home for a period of at least four consecutive weeks in 2020 due to COVID. Under this method, you simply use Form T777S to claim $2 for each day you worked from home, up to a maximum of $400 (i.e. $2/day for up to 200 working days) per individual. The benefits of using the flat-rate method are that you do not have to keep any supporting documents to track your expenses nor do you have to allocate any expenses between employment and personal use. In addition, you don’t need a signed form T2200(S) Declaration of Conditions of Employment from your employer.
Working from home: Now it gets complicated
Under the detailed method, you must have worked from home more than 50 per cent of the time, for a period of at least four consecutive weeks in 2020, and have a completed and signed Form T2200(S) from your employer. If you choose the detailed method, you’re able to deduct a variety of expenses, such as a portion of the cost of rent, electricity, heating, home internet access fees, water, as well as maintenance and minor repair costs. Commissioned employees can also deduct the cost of home insurance, property taxes and leasing costs associated with a cellphone, computer, laptop, tablet, fax machine, etc. that reasonably relate to earning commission income. Of note, however, no employees can deduct mortgage interest, capital expenses or depreciation (capital cost allowance), meaning you can’t deduct the cost of that new ergonomic chair, widescreen monitor or headset.
Where there’s a mixed personal and work element to an expense, you can only claim the portion of the expense that can be reasonably allocated to employment use. For utilities, rent and other expenses, you need to allocate the expenses on a “reasonable basis,” which is typically done by taking the area of your work space, divided by the total finished area (including hallways, bathrooms, kitchens, etc.) of your home. If you use a common space for both work and personal purposes, such the kitchen table, you also need to allocate the expenses based on the number of hours you worked in a week.
The CRA has created an online calculator to help calculate your 2020 home office expense deduction.
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What’s new, Part 1: The enhanced basic personal amount
New for the 2020 return is the enhanced basic personal amount (BPA), which is the mechanism used to ensure that no tax is paid on a certain amount of basic income. For 2020, the enhanced BPA is $13,229, up over $1,000 from 2019. But the increase in the BPA doesn’t apply to everyone as it’s reduced, on a straight-line basis, for taxpayers with net incomes above $150,473 (the bottom of the second-highest tax bracket for 2020) until it has been fully phased out once a taxpayer’s income is over $214,368 (the threshold for the highest tax bracket in 2020), to ensure “the wealthiest Canadians would not benefit from this proposed change.” The federal BPA is a non-refundable credit valued at 15 per cent.
What’s new, Part 2: Good news for news junkies
Also new for the 2020 return is Line 31350 — Digital news subscription expenses, which allows you to claim a federal non-refundable credit of 15 per cent for up to $500 for amounts you paid in 2020 for qualifying subscription expenses. You must have paid the amounts to a qualified Canadian journalism organization for a digital news subscription to content that is primarily original news.
Etienne Biram, a CRA spokesperson, said the CRA is currently working on making the list of eligible subscriptions, which will be compiled based on organizations that submit a request to the CRA, available to the public. That being said, other organizations may offer a subscription that qualifies for the digital news subscription tax credit, but may have not requested a determination from the CRA.
Jamie Golombek, CPA, CA, CFP, CLU, TEP is the Managing Director, Tax & Estate Planning with CIBC Private Wealth Management in Toronto.