Now that employees have received their T4s and other tax slips are on the way, it is time to file for your 2020 tax return. This article discusses the new and temporary measures available to taxpayers for 2020 and beyond.
What is new in 2020?
If you are an individual who received one of the following government support benefits for COVID-19, you will receive a T4A or T4E slip. These support payments are taxable and should be declared on your 2020 tax return.
Canada Emergency Response Benefit (CERB)
CERB payments have no tax withheld at source, so be prepared to pay taxes. It is also important to note that the Canadian federal government has recently announced that self-employed individuals with net self-employment income less than $5,000 who applied for CERB will not be required to repay their support payments, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria. Here are the slips that you will receive:
- If the application is done with Service Canada, a T4E slip will be issued and the total amount will be declared on Line 11900 (employment insurance and other benefits) of your federal tax return.
- If the application is done with the Canada Revenue Agency, a T4A slip will be issued, and the total amount will be declared on Line 13000 (other income).
In August 2020, the federal government announced three new benefits, all of which are taxable benefits with 10% tax to be withheld at source.
- Canada Recovery Benefit (CRB)
CRB will be offered between September 27, 2020 and September 27, 2021 for employees who stopped working and do not have employment insurance for a maximum of 26 weeks. However, if the net income of the applicant, excluding the CRB, surpasses $38,000, CRB must be repaid at a rate of $0.50 for each dollar paid. If the net income is over $48,000, the benefit must be repaid in full.
- Canada Recovery Caregiving Benefit (CRCB)
This benefit is payable for up to a maximum of 26 weeks to employees who must care for an admissible relative. A T4A slip will be issued and 10% tax will be withheld at source when payment is made.
- Canada Recovery Sickness Benefit (CRSB)
This benefit is payable to employees who are unable to work due to COVID-19 for a maximum of two weeks.
If the application is completed with the Canada Revenue Agency, a T4A slip will be issued, and the total amount will be declared on Line 13000 (other income).
In February 2021, the government also announced that it will provide targeted interest relief to Canadians who received pandemic-related income support benefits. Once individuals file their 2020 income tax and benefit return, they will not be required to pay interest on any outstanding income tax debt for the 2020 tax year until April 30, 2022. This will give Canadians more time and flexibility to pay if they have an amount owing.
To qualify for targeted interest relief, individuals must have had a total taxable income of $75,000 or less in 2020 and received income support in 2020 through one or more of the following COVID-19 measures:
- The Canada Emergency Response Benefit (CERB)
- The Canada Emergency Student Benefit (CESB)
- The Canada Recovery Benefit (CRB)
- The Canada Recovery Caregiving Benefit (CRCB)
- The Canada Recovery Sickness Benefit (CRSB)
- Employment Insurance benefits
- Other similar provincial emergency benefits
Home office expense deductions
Since the pandemic has forced many employees to work from home, many Canadians were wondering if some of their home office expenses are tax deductible. The Canada Revenue Agency states that if you have worked at least 50% of the time from home for a period of at least four consecutive weeks in 2020 due to COVID-19, you may be eligible to claim a home office deduction on your tax return. Eligible employees have the option to choose between two methods to claim a home office deduction for 2020:
- The new temporary flat rate method provides a deduction of $2 per day for each day the eligible employee worked from home, up to a maximum of $400, with no need to provide invoices or obtain form T2200 from their employer.
- With the detailed method, existing rules apply where eligible employees can claim the employment portion of actual home office expenses paid, which would require itemizing expenses and obtaining a signed T2200S or T2200 form from the employer.
Self-employed individuals will continue deducting home office expenses as they did in previous years.
Canada Training Credit (CTC)
A new refundable tax credit, the Canada Training Credit, became available in 2020. If eligible, an individual can claim the CTC, which is based on the lesser of 50% of eligible tuition and fees paid in respect of 2020, and also serves as their CTC limit for the year. CTC is for an individual who is at least 25 years old and less than 65 years old at the end of a calendar year. They can accumulate $250 of their CTC limit for the next tax year, up to a maximum of $5,000 in a lifetime, provided they satisfy all of the following conditions for the year:
- They file an income tax and benefit return for the year.
- Remain a resident in Canada throughout the year.
- They have a total working income (including maternity and parental benefits) of $10,100 or more in 2020.
- They have individual net income for 2020 that does not exceed $150,473.
Even in years where you make a claim for the CTC, you can still accumulate $250 in your CTC limit for the next tax year.
Note: Educational institutions outside of Canada are not eligible for Canada Training Credit.
Digital subscriptions tax credit
A new 15% non-refundable tax credit for subscriptions to Canadian digital news is available on amounts paid by individuals to a qualified Canadian journalism organization (QCJO) for qualifying subscription expenses for 2020 to 2024. Up to $500 in amounts paid for qualifying subscription expenses in the year will qualify for a maximum tax credit of $75 annually. If the qualifying subscription is eligible and provides access to content in non-digital form or content other than QCJP content, note the following:
- Only the cost of a standalone digital subscription to the content of the QCJO will be an eligible expense.
- If there is no stand-alone subscription, the amount is limited to the cost of a comparable stand-alone digital subscription that provides access to content of a QCJO. If there is no comparable digital news subscription, then only one half of the amount paid is an eligible expense.
Home Buyers’ Plan (HBP)
The 2019 federal budget extends access to the HBP in order to help Canadians maintain homeownership after the breakdown of a marriage or common-law partnership. In this situation, certain additional HBP eligibility conditions must be met. These new measures take effect for withdrawals made after 2019. Existing HBP rules will otherwise generally apply.
Provided that you live separate and apart from your spouse or common-law partner for a period of at least 90 days as a result of a breakdown in your marriage or common-law partnership, you will be able to make a withdrawal under the HBP if you live separate and apart from your spouse or common-law partner at the time of the withdrawal and began to live separate and apart in the year in which the withdrawal is made, or any time in the four preceding years. However, in the case where your principal place of residence is a home owned and occupied by a new spouse or common- law partner, you will not be able to make an HBP withdrawal under these rules.
You will be required to dispose of the previous principal place of residence no later than two years after the end of the year in which the HBP withdrawal is made. The requirement to dispose of the previous principal place of residence will be waived if you buy out the share of the residence owned by your spouse or common-law partner. The existing rule that individuals may not acquire the home more than 30 days before making the HBP withdrawal will also be waived in this circumstance.
Existing HBP rules will otherwise generally apply. For example, your outstanding HBP balance must be nil at the beginning of the year in which you make an HBP withdrawal.
Keep in mind that the HBP limit increased to $35,000 for withdrawals made after March 19, 2019 and repayments to your RRSP begin in the second taxation year following the year of withdrawal.
New Federal Personal Basic Amounts
The federal basic amount will gradually be increased to $15,000 by 2023. It is comprised of two elements: the base amount ($12,298 for 2020) and an additional amount ($931 for 2020). The additional amount is reduced for individuals with net income in excess of $150,473 and is fully eliminated for individuals with net income in excess of $214,368.
Government of Canada proposes increase to number of weeks for recovery benefits and Employment Insurance regular benefits to ensure continued support for Canadians who have been hardest hit.
On February 19, the federal government announced its intent to introduce regulatory and legislative amendments to increase the number of weeks of benefits available for the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), the Canada Recovery Caregiving Benefit (CRCB) and Employment Insurance (EI) regular benefits.
The proposed changes would result in the following:
- Increase the number of weeks available under the Canada Recovery Benefit (CRB) and the Canada Recovery Caregiving Benefit (CRCB) by 12 weeks, extending the maximum duration of the benefits through regulation from 26 weeks to up to 38 weeks.
- Increase the number of weeks available under the Canada Recovery Sickness Benefit (CRSB) through regulation from the current 2 weeks to 4 weeks.
- Increase the number of weeks of EI regular benefits available by up to 24 weeks to a maximum of 50 weeks through legislation, for claims that are made between September 27, 2020 and September 25, 2021.
To ensure employees in the federally regulated private sector can access the proposed additional weeks of CRCB and CRSB without risk of losing their jobs, the maximum length of the leave related to COVID-19 under the Canada Labour Code would also be extended.
The government also proposes to allow self-employed individuals, who have opted into the EI program, to access special benefits by using a 2020 earnings threshold of $5,000 compared to the previous threshold of $7,555. This change would be retroactive to claims established as of January 3, 2021 and would apply until September 25, 2021.
Remember, this year the tax filing deadline is April 30, 2021 and there has not been any announcement regarding its extension. We strongly suggest that you file your return by this due date.