Wondering what's new with your 2020 personal taxes? From T slips to working from home, we’ll walk you through some changes you should know about this year. We’ll also cover various deductions: how to report them, and how they affect your taxes. Let’s dive in!
COVID-19 and T slips
CERB and CRB
Be prepared for CRA audits
Claiming medical expenses
Donations
RRSP, TFSA and investments
Rental properties
For sole proprietors
Instalments
Working from home
Other tax changes
Webinar on 2020 personal tax changes
COVID-19 and T slips
You may notice some extra box numbers at the bottom of your 2020 T4 slip. These help the CRA determine eligibility for COVID-19 relief for the defined period:
- Code 57: Employment income – March 15 to May 9
- Code 58: Employment income – May 10 to July 4
- Code 59: Employment income – July 5 to August 29
- Code 60: Employment income – August 30 to September 26
If you received COVID-19 relief money such as the Canada Emergency Response Benefit (CERB) or Canada Recovery Benefit (CRB), you should expect a T4A slip. These slips also are available in your CRA individual personal tax account, CRA My Account.
If your business received support such as the Canada Emergency Wage Subsidy (CEWS), you should include this as business income or reduce your expenses by this amount.
Government loans like the Canada Emergency Business Account (CEBA) are not taxable, but you have to include any portion of the loan that is forgivable on your income statement. And yes, even though the $10,000 (or $20,000 if you re-upped to $60,000), is not technically forgiven until December 31, 2022 when the loan is repaid, you’re still required to include it as income for 2020 (or 2021 – whichever year you received the loan).
CERB and CRB
The Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB) are both taxable income, and you will receive a T4 slip. However, there are a few differences:
- With the CERB, no withholding taxes were taken by the CRA.
- With the CRB, 10% of the income has already been withheld for you.
- Made more than $38,000? The CRB you collected during the year will get “clawed back” at a rate of $0.50 per dollar earned over $38,000. This means you need to repay $0.50 for each dollar of your annual net income above $38,000 in the calendar year (to a maximum of the benefit amount you received).
Be prepared for CRA audits
We expect many will receive COVID-19-related CRA letters this year verifying their eligibility for relief money. If you’re our client, we’ll deal with the CRA for you! Reach out to us immediately as there’s likely a tight timeline to respond.
Be prepared to provide the CRA with documentation:
- Pay stubs, statement of benefits, contact info for your employer
- ROE or letter from employer explaining your leave was due to COVID-19
- Invoices with payment receipts if you’re a contractor or self-employed
- The CRA may contact the parties involved (employer, clients)
Claiming medical expenses
You can claim the total of the eligible expenses minus the lesser of the following amounts:
- $2,397
- 3% of your net income (line 23600 of your tax return)
If you’re a True North client, please provide us with all medical receipts so we have them on hand if the CRA requests them.
Example:
You paid $1,200 (personally) for Blue Cross and had an additional $2,100 in medical expenses, for total eligible medical expenses of $3,300.
Your net income was $80,000 in 2020.
3% of your net income = 3% x $80,000 = $2,400
The minimum threshold is $2,397, as it’s the lower of 3% and the stated amount
Deductible amount = $3,300 - $2,397 = $903
You’ll get a tax credit of $903, which will save you 25% in tax in Alberta (or $225.75).
New this year: If you hold a medical document, medical cannabis is an eligible medical expense.
Donations
Albertans receive up to 50% on donations over $200 in deductions, and 25% on the first $200. Remember to provide the official tax receipt to claim the deduction. This should include the charitable number and be signed by the organization.
If you’re a True North client, please provide us with donation receipts so we have them on hand if the CRA requests them.
New this year: Donations made to registered journalism organizations (RJO) qualify.
RRSP, TFSA and investments
A Registered Retirement Savings Plan (RRSP) is a retirement savings plan, and deductible RRSP contributions can be used to reduce your tax. Any income you earn in the RRSP is usually exempt from tax as long as the funds remain in the plan. You generally have to pay tax when you receive payments from the plan.
- An RRSP is a deduction against income, saving you tax.
- You must provide a contribution slip to verify the name and date.
- You can contribute up to 60 days into the following tax year.
- Be sure to know your RRSP contribution limit before you invest.
The Tax-Free Savings Account (TFSA) is a way to set money aside tax free. Contributions to a TFSA are not deductible for income tax purposes. Any amount contributed as well as any income earned in the account (for example, investment income and capital gains) is generally tax free, even when it is withdrawn.
- A TFSA won’t save you tax today, but its growth, income and withdrawals are tax free.
- You can contribute $6,000 a year.
- The lifetime limit is now $75,500.
Unregistered accounts
Make sure to request a Statement of Realized Gains & Losses from your financial institution for your other investments. If you paid any investment management fees for unregistered accounts, these count as a deduction as well.
Foreign investments
If you own foreign property over $100,000, you need to report this to the CRA. If this is a personal-use vacation property, it doesn’t need to be reported unless it is generating rental income. If the property is valued at over $250,000, greater detail is required.
Rental properties
If you are a new landlord this year, remember that you need to report your rental property income each year (even if it’s a loss). Here’s the rental property worksheet that we recommend using.
For sole proprietors
If you’re a sole proprietor, you need to report your business income on the T2125 form of your personal tax return. Your tax return must be filed by June 15, 2021, but if you have an amount owing, it needs to be paid by April 30, 2021 to avoid interest.
GST is filed as part of a separate tax return, with the same payment deadline (April 30) and filing deadline (June 15).
Instalments
Wondering if you need to pay instalments? Instalments are required if your net tax owing for 2020 is above $3,000. These tax instalments will cover any amounts owing for the upcoming tax year. (And if you don’t pay them on time, you get dinged.)
When do I need to pay?
Instalment payments are due four times throughout the year – on the 15th of March, June, September and December. Interest accrues on unpaid instalments from the payment due date (as long as you owed at least as much as prior year).
The easiest way to deal with instalments is to schedule the payments with your bank ahead of time so you don’t miss any of them or incur any penalties.
Working from home
Many of you probably worked from home this year because of the pandemic. The CRA has two new methods to calculate your home office expenses. Choose the one that benefits you the most:
- New temporary flat rate method for home expenses:
- $2/day, up to $400 tax credit, without needing any forms
- Eligible if you worked more than 50% of the time from home for at least four consecutive weeks in 2020 due to COVID-19
- New detailed method to claim amounts actually paid:
- T2200 or T2200S required if you want to claim more than $400
- In this case, receipts are required (no employee reimbursement)
- Your employer must provide a completed T2200 that is signed
Other tax changes
Digital news subscription expenses
You may be able to claim up to $500 if you paid for qualifying digital subscription expenses in 2020.
Home Buyers’ Plan
The Home Buyers' Plan (HBP) is a program that lets you withdraw from your RRSPs to buy or build a first home without being taxed. The HBP limit has increased from $25,000 to $35,000 this year ($70,000 for couples).
If you’re not considered a first-time home buyer and you experience a breakdown in your marriage or common-law partnership, you may be able to participate in the HBP under certain conditions.
Student moving expenses
If you moved at least 40 kilometres to attend a post-secondary educational institution full time, you may qualify to deduct moving expenses incurred. The deduction can be made against either taxable scholarships or income earned in the new location while at school.
Canadian training credit
You may be qualified to claim the $250 Canadian training credit (CTC) for eligible tuition and other fees paid to an eligible educational institution in Canada for courses you took in 2019 or 2020. You can save these credits up to a maximum of $5,000 in a lifetime.
Looking to make your tax season even easier? Book a free consultation with one of our CPA-trained True North team members to learn how we can help small business owners like you. We offer personal tax filing for all of our incorporated clients. Contact us today.
Read more about Canadian Personal Tax topics that may be helpful to you and your small business.
