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Keeping tax records can be difficult under any circumstances, but in the year of COVID-19, it could become more complicated. That is why it’s a good idea to get things in order before the year ends.
Here are a few special considerations that might apply to you. A word of warning: the acronyms can be mind-boggling, so try to keep them straight.
If you received the Canada Emergency Response Benefit (CERB) during the year, it is fully taxed as income. The rate of taxation depends on your marginal tax rate, which is based on your total taxable income in 2020. The higher your income, the higher the marginal tax rate.
Unlike employment income, where income tax is automatically deducted before you get it, the tax on the CERB was not deducted at the source. The means you will need to pay tax on it before the April 30, 2021 deadline to file your 2020 taxes.
The government should have already deducted a 10-per-cent withholding tax for other pandemic-related benefits including the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB) for self-employed individuals, or the Canada Recovery Caregiving Benefit (CRCB). That means 10 per cent of the taxable amount was deducted at the source, but you still owe the difference if your marginal tax rate is higher.
In the case of the CRB, if your total net income is over $38,000 without the benefit in 2020, you could be required to pay some of it back.
The Canada Revenue Agency (CRA) should be sending a T4A tax slip with the confirmed amount of taxable income by the end of February, but it’s a good idea to prepare by setting aside some cash.
On the plus side, some of the tax you owe could be offset if you were forced to work from home as a result of the pandemic. Certain home office expenses can be claimed. However, due to an expected onslaught of home office claims, it is not entirely clear right now strictly the CRA will scrutinize 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 advise anyone working from home because of the pandemic to keep track of when they began operating remotely, how often, and for how long.
Experts are also advising home office workers 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.
Keep in mind that expenses provided by, or reimbursed by the employer, such as internet service or office supplies, cannot be claimed.
2020 will be a tax year like no other not only for individual taxpayers, but also for the CRA. It’s important to keep up with changes. If you normally do your own taxes and you are unsure, it might be a good year to pay a tax professional.
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.