2020 has finally come to a close, and 2021 is here, which means tax season is just around the corner for us. As we get closer and you begin to prepare for your annual filing, we wanted to put together a list of things you should consider. Many of these are items that have marginally changed, some are larger changes that have taken effect in 2021. Included in this are notes about the emergency aid the Canadian Government gave, as well as notes regarding Work from Home options.
Canadian Relief Program Benefits
We did a full blog post detailing tax considerations for those who received relief during the COVID-19 pandemic, which you can find here. The short of it is that the Canadian Emergency Response Benefit (CERB) was not deducted at source, meaning you will owe taxes on it if you collected. The Canada Response Benefit (CRB), Canada Recovery Caregiving Benefit (CRCB), and Canada Recovery Sickness Benefit (CRSB) were deducted at source, but may not have seen a high enough deduction based on your income, so you may owe additional from that. Keep these in mind as you file your taxes this year, and see about putting money aside.
Work From Home Expenses
In December of 2020 the Federal government introduced a simplified solution for Canadians looking to claim work from home expenses due to the pandemic. This allows a person who was working from home to claim a flat $2 a day for their time spent working at home, up to a maximum of $400. Under this new system, employers are not required to issues a T2200 or T2200S (though they still can).
For employers looking to reimburse their staff for purchases made to work from home, they can provide up to $500 of reimbursement tax-free. Under normal circumstances employers can only reimburse for home computer equipment, however with the effects of COVID-19, they can do so for home office furniture as well. This can be desks, chairs, or other items required to make the experience more productive.
Home Buyers’ Plan (HBP)
Canada offers the Home Buyers’ Plan, which allows Canadians to withdraw up to $35,000 from your RRSP for the purchase of construction of a new home, so long as it is their first home. If you are married or common-law, your partner may also withdraw, giving a combined total of $70,000 potentially available. You will be required to pay this back over the next 15-years starting from the second year after withdrawl, and can be combined with the First Time Home Buyers’ Incentive. You are not required to pay taxes on this withdrawal, which can be a benefit instead of say, withdrawing investment options.
Parental Tax Breaks
It is often said that being a parent isn’t easy, and 2020 was no exception to that. There are certain tax breaks that have been adjusted for 2021 that aim to make it a little easier. A big one will be the Canada Child Benefit being adjusted for inflation. It has been increased as much as 15%, meaning the maximum for a child under six has increased to $6,765 from $6,639, and for children six to seventeen to $5,708 from $5,602. For some parents, the new rules though can increase by almost $1,000 for them, especially for parents with children under a year old.
EI related to parental leave has been made tax exempt at source, meaning for someone making roughly $45,000 a year, you could see savings of up to $1,800. Further included in this, parents who adopt are being given the same paternity leave as parents who give birth, meaning a 15-week parental leave time covered by EI.
Another area where parents are being given support is in the Child Disability Benefit, which is expected to increase by nearly double. For some parents this could be up to $2,800 in additional tax savings, if not more, for a child under eighteen who has a disability.
Something to keep in mind if you collected the Canada Recovery Caregiving Benefit (CRCB), is that while there were taxes withheld at the source, there may not have been enough deducted. Just keep this in mind when it comes to your filing, though likely there are ways to offset it with the other benefits mentioned above.
Senior Tax Breaks
In the older members of the community, there is hope in further tax relief as well, and considerations to keep in mind. Most of it comes in the form of increased payouts from the Canadian Old Age Security, which is a top up of payments for those who live and worked in Canada after they pass the age of 65. For those above 75 the increase is as much as 10%.
There were also changes to the survivor benefit of the Canadian Pension Plan (CPP). First of all, there was an increase of maximum pensionable earnings from $57,400, to $58,700. Further, a surviving spouse over the age of 65 and not receiving CPP benefits may receive up to 60% of their spouses pension. Spouses between 60 and 64 are eligible for 37.5%.
In 2020 the Federal Government upped the Tax Free Savings Account to $6,000 annual contribution, which remains unchanged for 2021. The TFSA is a great way for Canadians to save, as it grows in the account, without incurring taxes. When you cash out that money, unlike the RRSP, that amount is not put against your income tax.
Canada Training Benefit
If you are between the ages of 25 and 64, and looking to learn new skills in Canada, the Canadian government offers the Canada Training Benefit. Eligible Canadians receive an accumulated $250 a year into the CTC account, up to a maximum lifetime allowance of $5,000. This credit is used to reimburse up to half the cost of a course or training program. This will allow Canadians looking to learn new skills and stay competitive in the workplace to learn without negatively affecting their lives. To make it easier, the available credit is to be included in CRA information sent to you annually.
Further added in this program is the option for leave through the EI Training Support Benefit, which offers 4 weeks of paid time off at up to 55% of the average weekly earnings.
Along with this is the Lifelong Learner Program (LLP), which allows you to withdraw up to $10,000 for full-time training or education for you, your spouse, or common law partner. Keep in mind this is not available for your children. You are allowed to withdraw a total of $20,000 from the program, and you must attend a full-time, accredited learning institution. You have 10 years to repay these withdrawals.
Medical Cannabis Deductions
If you have been prescribed Cannabis as a medical treatment, the Income Tax Act has been amended to reflect its legalization in Canada. Since October of 2018 you have been able to claim any cannabis you purchased for medicinal purposes.
Basic Personal Amount
The Basic Personal Amount is a non-refundable tax credit that anyone in Canada can claim. It provides a full reduction in federal income taxes to anyone making below the BPA, which was set at $13,229 in 2020. The Federal Government of Canada is set to increase that number to $15,000 by 2023. That said, if your non-refundable tax credits are worth more than you owe, you do not get a refund on the difference.
If you are in the second highest tax bracket in Canada, that is $150,473 a year, your BPA is reduced, with those in the top tax bracket, $214,368 a year, will not receive any BPA reduction at all.
Adjustments to Employee Stock Options
An employee buying stock can claim a deduction of 50%, which puts it in a similar tax treatment as capital gains. However, new rules we put into place where for “long established, large” companies, the annual limit has been set at $200,000. This change does not affect start-ups or rapidly growing Canadian firms.