As it was recently recognized by the Canada Revenue Agency (“CRA”), the 2021 tax season will be “like no other” due to the trailblazing changes resulting from the pandemic. Millions of Canadians from all walks of life were affected – from business owners to salaried employees and independent contractors/freelancers often called the “gig economy workers”. Many had to access temporary emergency financial help provided by the federal and provincial governments and others had to adhere to the mandatory work-from-home requirements. This is in addition to the usual additions, removals or modifications to the eligible deductions, credits and benefits introduced to the Income Tax Act (the “ITA”) each year. It is now time to decipher the impact of these benefits, loans, subsidies, one-time special payments or ITA amendments on our individual or business 2020 tax returns.
Here are a few highlights to keep in mind as you prepare your 2020 tax returns.
As a Business Owner:
- If your business received financial support from the federal government in 2020 such as, for instance, the Canada Emergency Wage Subsidy (“CEWS”), the 10% Temporary Wage Subsidy (“TWS”), the Canada Emergency Rent Subsidy (“CERS”) and other similar or complementary programs offered by the provincial government, the amounts received are considered taxable subsidies since they aimed to replace a portion of the income that was lost by your business during the pandemic. With respect to loans received under the purview of the Canada Emergency Commercial Rent Assistance (“CECRA”) or the Canada Emergency Business Account (“CEBA”), the forgivable portion of these loans also needs to be added to your income in the year that you received the loan.
- If you started a new business or are a new entrant to the gig economy in 2020 – as an independent contractor/freelancer in order to supplement your income during layoffs – all such income earned from self-employment minus eligible expenses and deductions is to be reported on your tax return.
As an Employee:
- Any emergency payments you may have received in 2020 from the Canada Emergency Response Benefit (“CERB”), Canada Emergency Student Benefit (“CESB”), Canada Recovery Benefit (“CRB”), Canada Recovery Sickness Benefit (“CRSB”) or the Canada Recovery Caregiving Benefit (“CRCB”) are taxable benefits. Furthermore, it is noteworthy that no taxes were deducted at source on CERB or CESB payments while a 10% tax was withheld on payments pursuant to the other programs. You may have received taxable provincial benefits as well. Importantly, the CRA indicated that it will provide interest relief to Canadians who received COVID-related financial support if their taxable income was $75,000 or less in 2020.
- Employees who were required to work from home at least 50% of their time for four consecutive weeks or more in 2020 are eligible to claim home office expenses. Under the simplified method, the employee can claim up to $400 (or $2 for each day of work from home up to the maximum $400). However, under the detailed method and depending on the circumstances, the employee can claim a portion of eligible home office expenses that include electricity, heat, water, utilities, home internet access fees, maintenance and minor repairs and rent in addition to office supplies. The CRA has provided a Statement of Employment Expenses (Form T777) to assist with the calculation of eligible expenses. Also keep in mind that you need to obtain and keep on file a signed Form T2200S or T2200 from your employer if the detailed method is used.
- You may also qualify for the refundable Canada Training Credit for a portion of your training fees incurred during the year as well as to claim a new digital news subscription tax credit up to $500 annually for subscriptions with a qualified Canadian journalism organization for subscriptions between 2020 and 2024.
FOUR QUICK TIPS FOR YOUR TAX REPORTING THIS YEAR
- Keep a copy of all receipts and required form to claim eligible expenses such as Form T2200 or Form T2200S (Declaration of Conditions of Employment for Working at Home Due to COVID-19). These will also be invaluable should you have to go through a CRA audit.
- File your tax return on time. Note that contrary to last year, the CRA has not extended the tax filing deadline. The due dates are April 30 for individuals, June 15 for self-employed people and June 30 for corporate tax returns of corporations that have a December 31 year end. Verify if you are eligible for the targeted interest relief or any other payment arrangements offered by CRA.
- Take advantage of the additional resources and extra assistance made available to you by CRA and your community tax clinics.
- When still in doubt about the interpretation of these ITA tax changes, need guidance with your negotiations with the CRA or if you are going through a tax audit, our team at Sicotte Guilbault can help you, and work with your accountant, to navigate through these challenging and unfamiliar times.