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Tax Minute – Tax Time!
Are you ready to file?
It is already that time of year again to get ready to prepare and file your 2020 tax return. 2020 was a year unlike any in recent memory, and the global COVID-19 pandemic lead to the Canadian government providing relief like we have never seen before.
While, like any other year, you should be considering if you need to make any RRSP contributions or repayments of the home buyers plan before March 1, 2021, this year you should also consider the impact of any COVID-19 related support payments and relief that may be available.
Canada Emergency Response Benefit (CERB)
If you received the CERB, you should be aware that these payments are taxable. In addition, unlike other benefits such as EI, no income taxes were withheld at the time of payment. Depending on your other sources of income for the year, CERB payments received may lead to tax bill on April 30th.
Canada Emergency Student Benefit (CESB)
Like CERB, those who received the CESB are subject to tax on the benefit and have not had any taxes withheld. While the average student may not pay tax due to tuition credits, the CESB may reduce the amount of credits available to be transferred to a parent.
Other COVID-19 Benefits
If you received the new Canada Recovery Benefit, Canada Recovery Sickness Benefit, or Canada Recovery Caregiving Benefit, these benefits are also taxable. Fortunately, unlike the CERB and CESB, these benefits were subject to withholdings of 10%. However, depending on your other income in 2020, the taxes withheld may not be sufficient to cover your tax liability created by these benefits.
Home Office Deduction for 2020
If you were working from home during the pandemic, you may qualify for a home office expense deduction for 2020. On November 30, 2020, the government announced that the home office expense deduction will be simplified for employees who worked from home in 2020 due to COVID-19. If eligible, you will be permitted to deduct up to $400 in home office expenses without the need to track detailed expenses or obtain a signed T2200 form (Declaration of Conditions for Employment) from your employer.
Commuting and Parking
Due to COVID-19 the CRA has stated that a reasonable allowance or reimbursement from an employer for travel expenses related to commuting from home to a regular workplace during the pandemic will not be considered a taxable benefit. In addition, employer-provided parking at the employee’s regular workplace will not be considered a taxable benefit where the regular place of employment is closed during the pandemic.
RRSP Contributions1
In order to be deductible for 2020, your RRSP contributions must be made on or before March 1, 2021. To determine how much you can contribute, check your RRSP contribution limit on your 2019 notice of assessment or using CRA’s My Account online service.
If you turned 71 on or before Dec. 31, 2020, your RRSP must be collapsed by the end of the year. However, you may still be able to contribute to a spousal or common-law partner RRSP if you make the contributions no later than the end of the year in which your spouse or common-law partner turns 71.
References:
1 Checklist 2020: Save on Your Personal Taxes, BDO Canada