While 2020 presented many challenges and shifts in our daily lives, it also brought about tax changes that you should be aware of. We have compiled a summary of the most significant federal tax changes that may affect your 2020 personal income tax return, as well as changes that may help you save taxes in 2021 and beyond.
Taxable COVID-19 support
Many COVID-19 benefits offered by the federal government are taxable. This includes the Canada Emergency Response Benefit (CERB), Canada Recovery Benefit (CRB), Canada Recovery Caregiving Benefit (CRCB), Canada Recovery Sickness Benefit (CRSB), and Canada Emergency Student Benefit (CESB). If you’ve received these benefits, the Canada Revenue Agency (CRA) will issue a T4A slip to report amounts paid to you under these programs, which you will need to include in income on your 2020 tax return.
The T4A slip will also report the 10% income tax withheld on the CRB, CRCB, and CRSB but no taxes were withheld on the CERB and CESB. You should know that depending on your total income, deduction and credits for the year, you may end up owing income tax when your return is due. It would be prudent to set aside sufficient funds to cover this tax liability and ensure you pay any taxes owing by April 30, 2021 to avoid interest and penalties.
If you’ve repaid any of the benefits before Dec. 31, 2020, your T4A should reflect these repayments. However, if you’ve repaid an amount after Dec. 31, 2020, the CRA says you will need to pay tax on the full benefit received in 2020 in accordance with your T4A, and adjustments for your repayment will be made after you file your 2021 taxes.
Some COVID-19 benefits offered by the provincial governments are also taxable. You should check to make sure that you have the relevant slips from your provincial government and include the taxable amounts in income on your 2020 tax return.
Home office expense deduction
If you worked more than 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 expense deduction on your tax return. Eligible employees have the option of choosing between two methods for claiming a home office expense deduction for 2020. The two methods are as follows:
- 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 track expenses or obtain forms from your employer.
- 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 form T2200S or T2200 from your employer.
To find out more about eligibility and which option would give you a higher deduction in your specific circumstances, read our Tax Alert, Claiming a home office expense deduction for 2020.
Canada Training Credit
A new refundable tax credit, the Canada Training Credit (CTC), is available starting in 2020. If eligible, you can claim the CTC, which is based on the lesser of 50% of eligible tuition and fees paid in respect of 2020, and your CTC limit for the year.
Eligible tuition and fees for CTC purposes are generally the same as tuition that would qualify for the tuition tax credit. Keep in mind that if you qualify for both the CTC and the tuition tax credit, the CTC will reduce eligible tuition for purposes of the tuition tax credit. Any unused amount will continue to accumulate in your notional CTC account, up to a lifetime maximum of $5,000.
You can check your eligibility and CTC limit by referring to your 2019 notice of assessment or logging into CRA’s My Account portal. Note that individuals under the age of 26 or over the age of 65 at the end of the year cannot claim the CTC for that year.
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 provides access to content in non-digital form or content other than content of the QCJO, generally only the cost of a stand-alone digital subscription to the content of the QCJO will be an eligible expense.
Home Buyers’ Plan
As of 2020, an individual can re-qualify for the Home Buyers’ Plan (HBP) following the breakdown of a marriage or common-law partnership in certain circumstances. In general, certain criteria must be met in order to be eligible:
- At the time of withdrawal of the funds from the RRSP, the individual must have been living separate and apart from their spouse or common-law partner for at least 90 days (which began in the calendar year in which the withdrawal is made or any time in the previous four years) due to a breakdown in the marriage or common-law partnership;
- If they are purchasing a home, the individual must sell their previous principal residence no later than the end of the second year after the year of withdrawal of funds from the RRSP;
- If they are buying an interest or right in a home from their former spouse or common-law partner, they must do so no earlier than 30 days before the withdrawal from the RRSP and no later than Sept. 30 of the year following the withdrawal; and
- If the individual has a new spouse or common-law partner at the time of the RRSP withdrawal, the new spouse or common-law partner does not own or occupy a home that is the individual’s principal residence.
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.
Enhanced Canada Pension Plan
As you are likely aware, your Canada Pension Plan (CPP) contributions have been increasing annually since 2019 and will continue to increase every year until 2023 (or 2024 if your income exceeds a new earnings ceiling). Similar enhancements were made to the Quebec Pension Plan (QPP).
When you file your personal income tax return for the 2020 tax year, remember that your CPP/QPP contributions consist of a base amount and an enhanced amount, which is consistent with 2019. While a non-refundable tax credit on the CPP/QPP base amount continues to be available, a tax deduction can also be claimed on the enhanced portion of the CPP/QPP since 2019. The maximum amount of the new tax deduction for 2020 is $165.60.
Tax-free savings account contribution limit
For 2021, the tax-free savings account (TFSA) annual contribution limit remains at $6,000 and any unused contribution room will carry forward. Contributions to a TFSA aren’t tax deductible and when money is withdrawn, the accumulated contributions and income received are not taxable.
If you have any questions about these tax changes, or how they may apply to your situation, please contact one of our trusted BDO advisors.
The information in this publication is current as of January 7, 2021.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.