Tax Expert Explains How the Pandemic’s Disruption of Our Personal and Financial Lives May Impact Our 2020 Income Tax Returns
Recently, we ran an article with tax tips for retired seniors filing their 2020 income tax returns. The tax advice in this article is generally geared more towards those under the age of 65.
In a year of ominous threats to our health and welfare, uncertainty about when we’ll get our vaccinations and anxiety about our financial future, there is, alas, one unchanging constant — we still have to file our 2020 income taxes.
While few people look forward to undergoing this yearly ritual, we’ll help ease the pain by asking for some timely advice from Susan Watkin, a Toronto-area accountant and spokesperson for TurboTax, a company that offers online tax preparation software and services.
“This year has been challenging for many Canadians,” says Watkin. “It’s not so much that the tax legislation has changed but for many of us our lives have changed.”
The economic and emotional fallout from the pandemic has been immense — people have retired, lost their jobs, found new employment or gone through a divorce. “Their situations have changed and that will have the biggest impact their tax returns,” notes Watkin.
If the pandemic has transformed your professional or personal life, it means that completing your 2020 taxes will be different this year. The key becomes finding out which one of the 400 or so deductions and tax credits apply to your new situation, and to take full advantage of them on your tax return.
Here are some key points to keep in mind as you prepare your personal returns.
COVID-19 Government Support
Canada Emergency Response Benefit: In March last year, when businesses began shutting down and laying off workers, the government responded with the Canadian Emergency Response Benefit (CERB), a $2,000 monthly payment to provide immediate support to help those affected by the lockdowns meet basic their needs. Watkin explains that the government did not withhold tax when it issued the CERB payments. If you received CERB support, you will get a T4A slip (if it was issued by the CRA) or a T4E slip (if it was issue from Service Canada). which you must file with your taxes.
Canada Recovery Benefit: The CRB benefit, which was rolled out when the CERB program ended, paid those whose jobs had been disrupted up to $500 a week for 26 weeks. Watkin notes that before sending out these cheques, the government deducted 10 per cent at source so you may not have any tax owing on this income. However, if you received CRB or any other pandemic-related government support (such as the Canada Recovery Caregiving Benefit, Canada Recovery Sickness Benefit, Canada Emergency Student Benefit or any provincial COVID-19 financial assistance payments), these are all taxable benefits. You will receive a T4A slip that you must report on the T1 general form. For more information, click here.
Work From Home Expenses
“Because the pandemic forced a many people to work from home, the CRA has come up with a temporary flat rate credit to help people claim work-from-home expenses to offset some of the added costs, such as extra hydro, access fees for Internet, work-related phone calls, etc.,” says Watkin. If in 2020 you worked from home 50 per cent of the time for four consecutive weeks, this credit allows you to claim two dollars for every day you worked at home, to a maximum of $400. If you are claiming work-from-home expenses using temporary flat rate method, you will not be asked to provide documents. For more information, click here.
Change of Occupation
Those who were laid off or downsized from full-time salaried positions during the pandemic last year may have found work elsewhere; consulting, delivering packages or working elsewhere in the gig economy. “As soon as we start earning income for ourselves, we’ve become self-employed,” says Watkin, noting that it will have ramifications on your tax return. If this describes your situation, you must fill out the T2125 Statement of Business or Professional Activities, which will ask you to outline all income, earnings, costs, business use of home expenses (which she says should not be confused with the work-from-home expenses credit mentioned above). For more information, click here.
Finding a new job can be challenging in this current environment and sometimes some of you may have had to relocate to a different city or province. If your new home is at least 40 kilometres closer to your new place of work than your previous home was, you may be able to claim transportation and storage costs, travel expenses, temporary living expenses, cost to maintain your home when it’s vacant, cost of selling your old home, and some of the costs of buying a new home. For more information, click here.
Change in Marital Status
The pandemic has not only created major upheavals to our financial situations but has also placed enormous strain on our personal relationships. If you’ve broken with your married or common-law partner, you must inform the CRA of this change within 30 days. “It may be the last thing on your mind when you’re going through a divorce but it’s really important to report any change, especially around tax time,” advises Watkin. One’s marital status impacts some of the benefits we may be eligible for, particularly those that are based on adjusted family net income. “You don’t want to find out months down the road that because your marital situation has changed, you no longer qualify for a benefit and you owe the government money,” she says. For more information, click here.
DIY Tax Preparation
“Many people are moving to online filing and do-it-yourself tax software,” says Watkin. “Especially this year, when we’re all trying to avoid physical contact.” Besides TurboTax, there are a host of CRA-certified companies that offer online or desktop tax software packages. Some even offer free returns to those who have a straightforward tax situations.
While the tax preparation software is easy to navigate and very user-friendly, some first-time do-it-yourself filers might find the prospect of working in a digital environment somewhat daunting. If so, the full-service packages offer users the opportunity to work with automated assistants or speak to live tax agents to answer their questions or walk them through the process. And if you still don’t feel comfortable doing it on your own — you can pay extra and have them do it for you.