Claiming at home work expenses for a household
Pandemic or no pandemic, the deadline to file 2019 taxes is June 1. Normally, it’s April 30, but the Canada Revenue Agency (CRA) extended the filing deadline when COVID-19 ramped up, and gave Canadians until Sept. 1 to pay taxes owed with no interest or penalties.
After two months of quarantine, income tax should be a welcome diversion. If family game night is wearing a little thin you can play “Pool Your Deductions” and lower your overall household tax bill.
In some cases, non-refundable tax credits can be shifted to higher-income family member in higher tax brackets. Non-refundable tax credits – including expenses for higher education, child and dependent care, adoption expenses and residential energy-saving – can only reduce a taxpayer’s liability to zero. So any amount that remains cannot be claimed.
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Expenses such as charitable donations and medical cost can also be pooled among family members to generate the biggest tax savings.
And all that family time can be used to formulate an income-splitting strategy for future years to ensure more retirement income is taxed in the hands of a lower-income spouse. Income splitting is not permitted until age 65, but can still lower your tax bill if you retire earlier.
Large discrepancies in income and retirement savings between spouses can be smoothed out by having the higher-income spouse contribute to a spousal registered retirement savings plan (RRSP) in the name of the lower income spouse. The higher-income spouse can deduct the contribution in a higher tax bracket and the lower income spouse can withdraw it in a lower tax bracket.
If you made an RRSP contribution before the March deadline you can deduct the full amount from your 2019 income provided you have allowable contribution space. The CRA provides available contribution space last year’s statement after you filed 2018 taxes.
However, you don’t need to deduct the full amount. Use your quarantine time to calculate various scenarios and only contribute enough to get below your highest tax bracket. Any contributions left over can be carried forward to the current tax year, or any year in the future.
Canadians who invest outside a registered plan including an RRSP or a tax free savings account (TFSA) must pay tax on half of their capital gains from the sale of equities in the 2019 tax year, but can reduce the amount by applying capital losses against them.
Eligible dividend payouts can also be partially offset through the dividend tax credit.
If you have tax questions, the CRA says wait times are longer. But in many cases, they can be addressed by searching the CRA website. Remember to keep all documentation relating to your filing in case further information is required.
Considering how life has changed drastically for most Canadians, 2019 might seem like a simpler time from a tax perspective. As you prepare last year’s tax return it might be a good idea to think about your 2020 taxes. Government payments such as the Canada Emergency Response Benefit (CERB) will be considered income.
On the plus side, if you were forced to work from home as a result of the pandemic, certain home office expenses can be claimed but it is not entirely clear right now how the CRA will treat them.
Home office deductions can normally be claimed only if the home is used for at least half of the total work time. The 50-per-cent rule also extends to the taxation year, but under the current circumstances in which people could possibly only be working from home for a portion of the year, the CRA will consider cases on an individual basis.
For now, tax experts are advising anyone who finds themselves working from home as a result of the pandemic to keep tabs on when they began operating from their homes, how often, and for how long.
Home office workers are also advised to keep track of out-of-pocket expenses relating to their work. That includes office supplies, computers and other equipment, and even repairs and maintenance to the workspace. Normally, those expenses can be fully deducted from related income.
As it stands, a portion of home utilities including electricity, heat and water can also be deducted. The portion is based on the square footage of the home office in relation to the total square footage of the home.
In order to prove home office expenses are required to perform work duties, the CRA requires documentation from the employer through Form T2200: Declaration of Conditions of Employment.
It’s important to keep in mind that expenses provided by or reimbursed by the employer, such as internet service or office supplies, cannot be claimed.
Payback Time is a weekly column by personal finance columnist Dale Jackson about how to prepare your finances for retirement. Have a question you want answered? Email firstname.lastname@example.org.