Although many tax planning considerations have not changed, there has been a lot of shifting supports from the government to get us all through the Covid-19 pandemic. We want to ensure you are prepared for filing your tax returns this year.
Working from home
If you have been working from home you are eligible to claim some expenses. Since so many people are doing this for the first time, the government has a simplified method to claim those expenses for 2020. The CRA is offering a “flat fee” for work-from-home deductions for 2020. Your employer does not need to fill out a T2200/T2200S for you, and there is little proof for receipts and costs you will need to submit. Essentially, it is $2 per day that you were required to be working from home, up to a maximum of $400 for the year.
If you choose the detailed method you will need a signed T2200/T2200S form from your employer, and you will need to keep track of costs like rent, electricity, heating, home internet and water, and some maintenance and minor repair costs. Commissioned employees have additional deductions available to them.
Which method is the best option for you will depend on your individual circumstances. Generally, if your work space at home is a fairly large percentage of your overall living space, then it may be to your benefit to do the long method. If you are working in a corner of your kitchen however, the percentage you can use of the home expenses could be much smaller, because you also use your kitchen for personal use. For example, if your kitchen’s area is 10% of your home, but you use your kitchen half of the time for cooking etc., then you will only have 5% percent of allowable expenses to claim. The flat fee method may be more beneficial in that case.
Here is a great breakdown of the full rules, so you can be prepared and make the decision as to which method is best for you.
Taxation of CERB and other supports
The Canada Emergency Response Benefit (CERB) transitioned to Employment Insurance (EI) in September of last year and three other benefits were added to support workers not eligible for EI for various reasons. All of these benefits are taxable to you as income. You should receive a T4A from the government reflecting the amounts you received in 2020. The original CERB payments had no tax withheld from them. The subsequent benefits had 10% tax withheld before those payments were sent. Whether you will owe additional tax will depend on your other sources of income for 2020.
It is advisable to do an estimate of your tax return for 2020 before March 1st, the RRSP contribution deadline. You may have the opportunity to offset any tax owing by making an additional RRSP contribution for 2020. If you have always prepared and filed your own tax returns in the past, you may want to consider having a professional tax preparer file your taxes for 2020. Ask your financial advisor for recommendations for qualified professionals.