Income Tax Return Filing For 2020 – Be Ready For Change
Warning: May Cause Grumpiness!
2020 was certainly an unprecedented year. The federal government’s deficit for the 2020-21 fiscal year is estimated to be approximately $386 billion.
Sometimes, I feel like Dr. Evil in Austin Powers when reciting that figure.
Of that $386 billion, $81 billion was sent out to individual Canadians as part of the Canada Emergency Response Benefit (CERB).
Sounds great, but hold on, please Cerb Your Enthusiasm for just a moment!
CERB And Your Income Tax Return
Remember, these CERB payments you received are taxable income.
If you received CERB, you will receive a T4A slip with the amount of CERB received.
You must include this slip and report the CERB as income on your tax return.
This will be added to all other sources of income and you may or may not owe additional tax when filing your tax return.
Estimating Taxes Payable On CERB
How will you know if you have additional taxes payable on the CERB income?
You can estimate this amount by adding up the CERB you received with all other sources of income you may have. Then enter that number into my favourite tax calculator.
The income tax calculator will show you your taxes payable.
If you had employment income, remember income taxes are deducted from your employment income.
Look at Box 22 of your T4 slip. If the amount in box 22 of your T4 is higher than the amount showing up as taxes payable on the tax calculator, then you will receive a tax refund for the difference.
However, if the amount of income taxes deducted as per Box 22 of your T4 is less than the total taxes payable now that you have added CERB to your income, then you will owe the difference in tax and it should be paid by April 30, 2021.
If you don’t have any employment income then another way to estimate your taxes payable on CERB is to add up the CERB received with whatever other sources of income you do have.
From there insert that number into the tax calculator, and then see what the taxes payable is.
Regardless, If your total income is under $20,000, you might have a very small tiny tax bill which may even be offset by GST credits that you receive throughout the year.
CRB, CRSB, and CRCB
In the fall of 2020, the CERB was replaced by the Canada Response Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Care Benefit (CRCB).
I wish they would have kept it as one program for simplicity’s sake but my wish did not come true.
Also, why do they have to put the word “Canada” in each of these programs?
We know what country we are living in!
But I digress.
These new benefits actually have income tax deducted at source at a rate of 10%.
Be very careful when you enter these T4A slips, showing these benefits received, on your tax return. Because CERB, as mentioned above has no tax deducted at source but these new benefits do. It could lead to confusion.
You may receive CERB and CRB.
CERB has zero tax deducted but CRB does so you want to ensure that you record the amount of income tax deducted from the CRB in your tax return so you don’t pay more tax than you have to.
Auto-Fill Your Tax Return
But don’t worry too much.
If you make a mistake in reporting the amounts on the slips, the CRA will correct it for you! This is because the CRA has the slips.
In fact, the CRA has your T4 slips, your T4A slips, T4E slips, T5s, T3s etc.!
It’s always baffled me that we have to go through this painful, grumpiness-inducing exercise of gathering all our slips together and putting them into a “tax return”, sending that to CRA and waiting for the CRA to correct it!
CRA already has all these slips on file.
In fact, you can “auto-fill” your tax return by downloading one of the CRA-recognized tax software (UFile, TurboTax, StudioTax, SimpleTax etc.) and enter in your name and social insurance number (SIN) and then click “auto-fill”.
But the system is not always perfect so I recommend comparing the tax slips that you have received with what CRA has on file and likewise comparing what CRA has on file with your slips to ensure you aren’t missing anything.
The government is implementing a new interest relief program this year. Interest relief will be given to individuals who meet all of the following criteria:
- You must have a taxable income of $75,000 or less in 2020
- You have a balance owing on your 2020 taxes.
- You must have received at least one of the COVID-19 benefits in 2020 (CERB, CESB, CRB, CRCB, CRSB, EI or a provincial benefit)
- You must file your 2020 tax return
Interest relief will be granted until April 30, 2022, but if you file your return late they will still charge late-filing penalties so it’s imperative you file your return by April 30, 2021, or if you are self-employed, by June 15th.
Home Office Expenses
It is estimated that approximately five million Canadians who do not usually work from home were forced to work from home during 2020.
I was very nervous about this, in terms of the 2020 tax filing season.
In normal years, for employees to claim a home office expense, they must receive a T2200 form filled out and signed by their employer.
They must then add up all their home office expenses for the year and input them into the T777 Statement of Employment Expenses on their tax return.
As well, they must calculate the square footage of the office space compared to the total square footage of their home.
In addition, one is obligated to keep all receipts for any expenses being claimed in case the CRA conducts a review or audit of one’s claim.
This is not an easy exercise, to say the least.
Temporary Flat Rate Method – Simple Tax Deduction for 2020
In order to avoid forcing employers to fill out millions of complicated T2200 forms and in order to avoid forcing 5 million Canadian employees to undergo a painful, time-consuming and costly exercise of trying to calculate one’s exact home office tax deduction and keep receipts for six years, the government created a simplified home office deduction for 2020.
One simply claims a flat amount of $2 per day, to a maximum of $400 as a tax deduction.
With this simple method, one does not need to keep any receipts and one’s employer does not need to fill out a form T2200.
I love the simplicity of this but some people might feel a $400 deduction is too low.
If you are in a high tax bracket and your home office expenses might be sizeable, it will probably be more beneficial for you to use the traditional detailed method to calculate your home office expense.
Home Office – What Can You Claim On Your Tax Return
If you are an employee who does not earn commission income, you can claim a portion of your rent, utilities, and repairs and maintenance.
If you do earn commission income, you can also claim a portion of your property taxes and insurance. Under all circumstances, you cannot claim mortgage interest.
My Two Cents
In my opinion, it seems strange that the government is not creating some sort of tax credit or deduction for employees who are forced to work in-person!
These are the true heroes of 2020.
The people working at grocery stores, pharmacies, hospitals, medical centres, food-packing factories, farms, restaurants to provide take-out and other such places.
There is no special tax deduction or credit for these people which I simply do not understand.
If I was put in charge of our tax system, which would be my dream come true, I would abolish every single deduction and credit in the tax system, and then lower the tax rates to make up the difference.
This would help and be fair to every single Canadian across the board.
GST Credits, OAS, CCB
Throughout 2020, the government increased the amounts of GST credits and Canada Child Benefits that Canadians receive.
Also, the government paid extra one-time payments of Old Age Security to those who are eligible.
All of these amounts are tax-free and do not need to be reported in your tax return in any way, shape, or form.
Discussion: If you have any questions for Neal about your return please comment below.
Thanks Neal for sharing your expertise with my CBB readers.
Neal Winokur is a CPA and recently released his new book The Grumpy Accountant.
He started his practice in 2013 and his grumpiness has grown ever since. Several of his articles have been published in The National Post.
Neal feels a moral obligation to speak out against the inherent flaws, unfairness and needless complexities that define Canadian tax.
His dream is for the tax system to be simplified to the extent that his job is no longer necessary. His wife won’t be happy about this but it’s for the good of the nation.