Category Archives for "Personal Income Tax"

Working from Home – How do the New Rules for Office Expenses Work?

By Randall Orser | Business , Covid-19 , Employees , Personal Income Tax

There is good news for those of us working from home, due to the pandemic and under new CRA guidelines we will be able to choose between using a new temporary flat rate (only for 2020) or using the detailed method to claim expenses.  This will simplify the process for both employers and employees and will reduce the compliance burden for employers who usually provide T2200 forms to their employees.  However these new rules only apply to employees, nothing has changed for those who are self employed working at home.  Here are some of the highlights:

Eligibility - to claim this temporary flat rate you must meet all the following conditions:

  • You worked from home in 2020 due to the pandemic (this applies even if you chose to work from home).
  • You worked from home more than 50% of the time for at least four consecutive weeks in 2020.
  • You are claiming home office expenses only and no other employment expenses.
  • You were not fully reimbursed by your employer for all of  your home office expenses.

How it works: You can claim $2 for each day you worked from home during the four consecutive weeks mentioned above, plus any additional days you worked at home in 2020 because of the pandemic.  The maximum you can claim is $400.

Why it is simpler: You don't need to calculate the size of your workspace, keep receipts or ask your employer to complete and sign Form T2200 or Form T2200S a shorter version that can be used if you opt for the detailed method calculate your home office expenses.

How to make the claim: First count the number of days you worked from home in 2020 due to the pandemic including part days and multiply that by $2 per day up to a maximum of $400.  You will then use form T777S - Statement of Employment Expenses for Working at Home Due to COVID-19 to enter these amounts and attach it to your 2020 income tax return. 

The detailed method to claim expenses is much more complicated.  

  • You have to have chosen to work from home or your employer required you to work at home. 
  • You were required to pay for expenses related to your home workspace and directly in your work.
  • You must have worked in your home workspace more than 50% of the time or for at least four consecutive weeks, or you used the workspace only to earn employment income.
  • You received a signed T2200 or T2200S from your employer.
  • You can claim office expenses as well as office supplies but they must be separated between employment and personal use.
  • Eligible expenses include rent, electricity, heating, home internet access fees, water, maintenance and minor repairs.
  • No eligible expenses include mortgage interest, principal mortgage payments, internet connection fees, furniture and capital expenses.
  • To claim utilities, rent and other expenses you need to allocate them reasonably by taking the area of your workspace and divide it by the total finished area of your home.  The CRA provides extensive guidance on calculating workspace use.  They also provide a comprehensive list of office supplies that are deductible or non deductible.

Should you choose the flat rate or the detailed method? - this will depend on your own personal circumstances.  It might make sense to go for the detailed method if you rent your home because included in your rent are expenses such as insurance and property taxes which you cannot claim if you own your own home.  For homeowners your eligible expenses may only be utilities so the fixed method may provide a deductions similar to that under the detailed method. 

The CRA website or income tax preparer will be able to provide you with more information to help you to decide which method you should use to claim your workspace expenses.

From an article by Margaret Craig-Bourdin

Tax Filing Tips for Gig Economy Workers

By Randall Orser | Freelancing , Personal Income Tax

Gig work is very appealing to those who don't like the idea of a long commute and 9-5 in an office cubicle.  Gig or freelance work gives workers the freedom to work on their own schedule without being tied to a specific employer and many do gig work to earn extra income in addition to their full time employment.  Covid-19 has changed the way that people work, many have lost their jobs and have had to become part of the gig economy as delivery drivers and in other jobs. 

Becoming self employed comes with additional tax issues to those full time employed workers have to contend with, and it is important that gig workers understand these issues so that they do not create problems with the CRA.  Here are three things it is important that gig economy workers need to know:

Educate Yourself - you need as much tax advice as you can get.  Adding additional income to your regular employment income could put you into a completely different tax bracket increasing your income tax bill and possibly impacting the various credits that your family might be receiving.  It is therefore important that you are aware of your tax planning options and if you are not sure you should consult an expert in financial planning or accounting.

Understand your Employment Status - are you earning extra income as a part-time employee or are you self-employed?  If you are an employee the tax rules are much simpler, you will receive a T4 from  your employers and will usually have tax deducted.  However you need to remember that your employers will only deduct tax on the amount earned with them so when both incomes are combined you may owe additional tax to that being withheld.  You will have any overpayments on CPP or EI contributions refunded.  

Income from Self-employment earnings - the rules for income earned from self-employment are more complicated as you are in fact operating a part-time business or rental operation.  It is a total misconception that money earned for driving for Uber or renting a room on Airbnb is tax free.  Many people think that the sideline income reduces their personal expenses and is not taxable, but any time you take in money in return for providing a service it is usually taxable.

However on the plus side expenses and deductions can reduce your tax bill.  However you have to be careful that the expenses that you claim are reasonable compared to the income you are earning.  For example if you are claiming car expenses as a ride-share driver you have to pro-rate them based on the ride share mileage compared to your total mileage. To make things more complicated, if you earn more than $30,000 from your side gig then you may need to charge GST and pay quarterly GST tax instalments.

For people new to working part-time in the gig economy it is very important that they understand the tax implications as it might be new to them.  Again if you are not sure how to complete your tax return and what expenses you can claim you need to consult a professional to avoid making any disastrous mistakes. 

From an article by Sophie Nicholls Jones

What Your Tax Accountant Needs to Prepare Your Income Tax Return

By Randall Orser | Business Income Taxes , Freelancing , Home Based Business , Investments , Personal Income Tax , Small Business

A reminder for our business clients

When it comes to income tax preparation, there are do-it-yourselfers and there are those who have their income tax prepared by professionals.

For many businesses, having a professional such as a tax accountant prepare their income tax returns is the most sensible option. We don’t all have time to become income tax experts and income tax mistakes can be costly. So why not hire an expert to get the job done right and cut down on tax time anxiety?

To do the job right, though, your tax accountant or other income tax preparer will need to have all the right tax records at hand – preferably organized. Use this checklist to get your records together for your tax accountant.

Business Records Your Accountant Needs

· Revenue and business expenses for the year

· Business use of auto

· Auto operating expenses

· Vehicle driving log with business kilometres driven

· Asset additions

· Business use-of-home details

Your tax accountant will also need any tax records such as:

· Last year’s Notice of Assessment

· Amounts paid by installments

· A copy of your income tax return filed last year (if you’re a new client)

Other records your tax accountant will need will depend on whether you’re asking him or her to prepare a T2 (corporate) or T1 (personal) income tax return.

If the latter, your tax accountant will need all the relevant information slips and tax-related documents. Here are some of the most common:

· T4 slips (if you have employment/business income)

· T4A commissions & self-employed

· T5013 Partnership Income

· T3 Income from Trusts

· T5 Investment Income

· RRSP contribution slips

· Charitable donations

· Medical and dental receipts

· Child care information

Save Money on Your Tax Accountant’s Fee

Accountants generally charge by the hour, so the harder you make their job, the more it will cost you.

Summarize and tally records wherever possible. Cheques, invoices, business expenses - all should be categorized and totalled. Sort all your information slips by type. Having your tax accountant do the organizing and tallying is the expensive way to go.

If you have several businesses, remember that you will have to have separate revenue and business expenses figures for each business, as business income should be listed by individual business on the T1 form.

Be as organized as you possibly can. For example, clip groups of receipts together by type and put a post-it-note stating what the category is on the top. The less your accountant needs to figure out, the less time she’ll be spending on your file.

And remember, having a tax professional prepare your income tax return(s) isn’t costing you as much as you think when you see the bill – it’s a legitimate business expense.

How to Prepare for your Taxes in 2021

By Randall Orser | Covid-19 , Investments , Personal Finances , Personal Income Tax , Retirement

For Canadians preparation for our 2020 tax return is going to look a little different this year.  Many of us take a closer look at our financial situations at the beginning of a new year with a view to reducing our tax bill and boosting our tax refund.  However this new year the two biggest changes we have to take into account are any emergency benefits and relief measures we may have received due to the pandemic and the amount that we can claim if we worked from home in 2020 due to Covid. 

Covid-19 Benefits

The CERB benefits you received are taxable - when you first received these benefits the government did not withhold the tax at source so you will have to include 100% of this money in your income for the year and you will have to pay tax on it.  The government will send you a T4A tax reporting slip for 2020 showing the amount that you will have to report.

The amount of tax that you will have to pay will depend on your total income for the year.  For example if your work income was $27,000 and you received $8000 in CERB benefits your taxable income for the year will be $35,000 and both your earnings and the CERB amount will be taxed the same way.  If your income is less than $12,000 for the year you will not have to pay any tax on your income. 

If you received the Canada Recovery Benefit, Canada Recovery Sickness Benefit or Canada Recovery Caregiving Benefit that became available in September the government withheld 10% in taxes at source.  However this may be insufficient to cover your tax due for 2020.  In addition if your additional income for 2020 is more than $38,000 then you may have to pay back the CRB at a rate of $0.50 for each dollar you received, so you should set aside some funds to cover the tax you may owe.  

If you received Covid-19 benefits that you were not entitled to, you were asked to return the funds by the end of 2020.  You were not obligated to do so but it would have been the best scenario for most people.  If you did not pay the money back then the amount will show up on your T4A for 2020 and you may have to pay taxes on it.  Any repayments will be shown on a T4A slip for 2021 which will allow you to claim a deduction on your 2021 income and benefit return.  This process is based on general rules in the Income Tax Act that apply to repayment of taxable income.  

The Simplified Home Office Deduction

2.4 million Canadians worked from home because of Covid-19 this year and may be able to claim some home office costs on their 2020 tax return without providing receipts or asking employers to fill out a T2200 form.  If you have been working from home for more than 50% of the time over at least four consecutive weeks in 2020 due to Covid-19 you will be able to claim a deduction of $2 for every day up to a maximum of $400.  The CRA calls this a temporary flat rate method of calculating the home office deduction.

For those who have more significant home expenses you will need to use the more detailed method to calculate the home office break.  You need to gather together all your home expenses including utilities, internet, heating, hydro etc to decide which method you want to use to claim your home office expenses.  For more help use the CRA's new online calculator.  

From an article by Erica Alini

2021 Tax Changes That you Need to Know About

By Randall Orser | Personal Finances , Personal Income Tax

Income Tax is the biggest expense for all Canadian families so it is important that you are familiar with changes for each tax year so that you can keep more money in their pockets.  2020 was a very unique year and many people are wondering what their taxes will look like in 2021.  In 2020 the tax filing deadline was extended to June but in 2021 the filing deadline is back to April 30th.

Here are some important changes to note for 2021

  • Federal and provincial income tax brackets are increasing to keep up with inflation.
  • Employment Insurance premiums are staying steady at 1.58% in 2020 but maximum insurable earnings will increase from $54,200 to $56,300.
  • Maximum pensionable earnings the amount used by the government to calculate contributions to the Canada Pension Plan will increase to $61,600 up from $58,700 in 2020, and the employee and employer contribution rates will be increasing to 5.45% from 5.25% in 2020.
  • The Canada Child Benefit will continue to be indexed to inflation.  The maximum that parents will receive is $6,765 for children under age 6 an increase from $6,639 in 2020.  For children ages 6 to 17 the amount will be $5,708 up from $5,602 in 2020.
  • The tax free savings account (TFSA) contribution limit for 2020 is $6000.  If you have never contributed to a TFSA and you have been eligible since 2009 you will have $75,500 contribution room.
  • The current basic personal amount a non refundable tax credit that all taxpayer can claim is $13,229 in 2020. 
  • Any maternity or parental benefits received through EI will be tax-exempt at source starting in 2020 which means an additional $1,800 a year for someone who receives EI benefits and earns $45,000 per year.  
  • For parents of disabled children the Child Disability Benefit has increased so that families could get an additional $2,000 a year.

If you are not sure what you are entitled to claim on your income tax return you should think about consulting a professional income tax preparer for help.  

From an article by Sean Cooper

Working from home? Canadians may get a $400 Tax Deduction

By Randall Orser | Employees , Personal Finances , Personal Income Tax

In early December 2020 in a proposal announced by the Federal Government the CRA would allow employees working from home due to Covid-19 to claim up to $400 in modest expenses without questions.

For many of us, working from home has become the norm and it is likely to stay that way for a while if not become a permanent reality.  For many us it means working on the kitchen table, in the dining room or wherever you can set up office space, but wherever it is there is a good chance that your bills have increased.  For those people who usually work from home in their home office, deducting home expenses on their tax return is the norm, but with so many more people working in their spare room or basement the federal government is looking at ways to simplify the process of claiming expenses.

Currently salaried employees who work more than 50% of the time from home are currently eligible to deduct part of the expenses related to their workspace such as electricity, heating and maintenance as a work-space-in-the-home-expense.  

The proposal that the CRA would allow a $400 claim for modest expenses was In the government's Fall Economic Statement for 2020 released November 30th, and would help taxpayers to access the deductions they are entitled to receive while simplifying the tax filing process. It means that employees can generally avoid the T2200 form that their employer would normally complete to tell the CRA that the employee has incurred mandatory expenses while working from home.  

More information on this proposal is expected in the coming weeks.

From an article by Stefan Labbe

Personal Finance Resolutions for 2021

By Randall Orser | Budget , Happy New Year , Investments , Personal Finances , Personal Income Tax , Retirement

As 2020 disappears into our rear view mirror and 2021 is upon us once again it is time to think about  our financial New Year's Resolutions.  As always it is best not to be too ambitious with your financial plans for the new year or you might be unable to stick to them.  Instead take a realistic look at your current financial situation and focus on quick and easy ways to manage personal finance tasks that will help you this year and in the future.  Here are some things to consider:

Top up your Emergency Fund - Financial experts recommend setting money aside for emergencies but even so most of us do not have an emergency fund.  Many people will have dipped into their emergency fund during 2020 so now is a good time to start rebuilding it if you are able to.  You should aim to have enough to cover your expenses for 3 to 6 months should you lose your job, enough to cover unexpected vehicle repairs, house repairs or medical expenses.

Contribute to your RRSP - This is a good time to open a RRSP if you don't yet have one.  If you regularly contribute perhaps you can increase your contribution in 2021 if you have enough room without over contributing.  

Sign up for Automatic Bill Payments - This will help you to not miss payments on your bills.  Include a minimum payment on your credit card which will avoid late payment fees.  Consider an automatic payment to your savings account from each pay check, what you don't have you don't miss!  It is usually easy to set up automatic payments on your bank's website.

Switch from a Bank that Charges Monthly fees to one with no Monthly Fees - There are many banks and credit unions out there that do not charge monthly fees for regular personal banking transactions.  Switching your account could save you at least $100 a year and maybe more.  If you don't want to change banks ask if your current one will waive your monthly fees.

Make Calls and Lower your Payments - It could be worth spending time calling your service providers especially for internet and cable to see if there is a way to reduce your monthly rates.   You should also look into the interest rates that you are paying on your credit cards and think about changing to a card with lower fees or cash back.  As most of us are not travelling at present it might be a good idea to get rid of your travel points credit card with it's high fees and change it to a regular card with a lower rate.  You could also try and negotiate a lower rate with your credit card company.

Update your Beneficiaries - Have you reviewed your will lately? This is a good time to make updates to your beneficiaries or any other information as your circumstances may have changed.

Check your Credit Report - Make sure that your credit report does not contain any errors or charges relating to identity theft as your credit score will affect your ability to get loans or lower rates on your credit cards.

Change your Passwords - It's a new year and time to change those passwords especially for your bank account and credit cards.  You should be doing this every three months but at least once a year will help to avoid identity theft.

Do a Subscription Audit - Take a look at your monthly subscriptions for streaming tv services, apps, news providers etc.  How many of these do you actually use?  If you have not used it for a while and don't intend to use it in the foreseeable future then deactivate it.  You can always reactivate it later if you need to.

Tweak your Budget - Though setting a budget can be intimidating it will help you to keep track of your spending.  If you are working from home and not spending money on Starbucks and lunches perhaps you could put that money into your savings account?

From an article by Mike Winters

Need Money? Should you Withdraw from your RRSP?

By Randall Orser | Budget , Personal Finances , Personal Income Tax , Retirement

Most of us do not think about withdrawing from our RRSP until we retire, but in some instances it might make sense to cash in a portion of your savings early to help finance your studies, buy a home or help you get through financial difficulties during the present pandemic.  Here are some examples of times you might want to access your RRSP funds.

  • If you want to become a homeowner but you are finding it difficult to save up enough for a down payment, through the Home Buyers' Plan (HBP) you may be able to get the financial boost that you need.  Under this plan you can withdraw up to $35,000 from your RRSP to buy or build a home provided that you are a first time buyer (defined as not having owned a home in the four year period preceding a home purchase).  The amount that you take out is repayable over 15 years.  Repayments are made as a RRSP contribution designated as a repayment on your tax return.  If you don't make a repayment the amount required will be included as income on your tax return.  Contributions must be in the RRSP for 90 days before they can be withdrawn under the HBP.
  • If you want to further your education by learning new skills or training for a new career you can enrol in the Lifelong Learning Plan (LLP) that allows you to withdraw funds from your RRSP to fund your tuition and help with other costs.  The plan allows you to withdraw up to $10,000 in a calendar year up to a total of $20,000.  The funds have to be repaid over a period of ten years avoid it being included as income.  
  • If you have income volatility an early withdrawal might make sense. Only the HBP and the LLP allow you to withdraw funds from your RRSP tax free if you have no other income in the withdrawal year your tax rate may be low.  Alternatively you could move the money from to a TFSA without paying much tax.  In both your RRSP and TFSA you need to make sure when you are making withdrawals and paying back that you do not go over your contribution limit in a year.    
  • If you expect to have a clawback on your OAS and you decide to retire at 60.  In that instance your income will probably drop until you reach age 65 when you will start to receive your company pension, CPP, OAS and money from your RRSP.  As your total income at age 65 may exceed the OAS clawback limit ($79,054 in 2020) your OAS will be subject to a clawback and 15% tax.  It would make sense to withdraw money from your RRSP over these five years probably saving you a lot of tax.  If you don't need the money it might make sense to use your RRSP for income until you reach age 70 as each year you defer claiming your government benefits means that they will increase.

However you decide to use your RRSP you need to do it with caution bearing in mind that the intent of a RRSP is to contribute regularly to a fund and let the money grow over the years until you retire.  Don't forget that any withdrawals are taxable.

From an article by Margaret Craig-Bourdin

Financial Literacy Lessons Should Begin Early in Life

By Randall Orser | Budget , Investments , Personal Finances , Personal Income Tax

For most of us money management was not a subject taught in our schools.  Today it is recognized that financial literacy should start at an early age and should be taught in schools.  The Ontario government recently announced that this would be a subject that would be included in the 2020 curriculum which would be a win-win situation for both children and their parents enabling children to achieve a more stable financial future.  Other provinces across the country are now also making financial literacy a priority in schools. 

According to Doretta Thompson CPA Canada's financial literacy leader, "financial wellness is a continuum from knowledge, to competency to confidence in making sound financial decisions". "Kids who learn the basics of budgeting, saving, credit and wants versus needs are better prepared to make good financial decisions through post secondary education and beyond." In BC a new provincial curriculum was introduced in 2019 after it was shown that a number of students were graduating with a lack of financial skills.

Experts believe that talking about money and financial management goes beyond dollars and cents, it is also about making choices and being aware of the trade-offs those choices require.  The classroom setting gives children the opportunity to ask questions about money such as creating a budget to allow them to save up for a toy.  It is important that teachers are comfortable teaching financial literacy especially if they are struggling in their own financial situation.

Teaching money management in school is a good foundation for kids to learn but it is important that parents engage with their children about what they are learning.  Other strategies for parents including giving kids an allowance and teach kids about spending and saving, involving them in family financial decisions where appropriate for their age and reviewing the kid's first pay stub to make sure that they understand about deductions and taxes.

Although it can be difficult for parents to discuss money with their kids it is a good idea to use every day examples to teach about money in a way that make it relevant to them.  Examples can pop up all the time such as when grocery shopping or getting gas. 

From an article by Ethan Rotberg

Over-contributed to your TFSA or RRSP? Here’s what you should do.

By Randall Orser | Investments , Personal Finances , Personal Income Tax , Retirement

It can be an easy mistake to over contribute to your TFSA or RRSP especially if you have an amount automatically contributed each month. If you find that has happened to you there are some basics that you should know to remedy this situation.

RRSP Contributions

The penalty for RRSP over contributions is 1% per month for each month that you are over the limit.  The CRA  does allow you a $2000 grace amount for over contributions but that amount is not tax deductible.  The best way for you to correct an overpayment is to withdraw the amount, though it will be subject to taxes.  You will be able to claim an offsetting deduction if you meet certain conditions (link to CRA Website).  The main condition is that you make sure the the over contribution is withdrawn in the year that it was made, the year in which you receive an assessment for the year of contribution, or in the year following each of these years.

If you meet the conditions for offsetting deduction you can have withholding tax waived on the withdrawal by filing form T3012A.  If you don't do this then the tax withheld at source can be claimed as tax paid on your tax return.  It is very important to keep track of your RRSP contributions and make sure that you withdraw any over contribution so as to penalties that may arise.

TFSA Contributions

Over contributions to TFSA's happens often especially when people have multiple accounts in different banks and they lose track of those accounts over time.  As the limits allowable have varied depending on the year it can become really confusing to contributors.  Two common mistakes are:

  • Replacing a TFSA withdrawal in the same year - if your contribution limit has already been reached you have to wait to replace a withdrawal until January in the next calendar year.  This often happens when the TFSA account is used in the same way as a savings account with repeated withdrawals and contributions which can create an over-contribution as withdrawals do not lower the contribution limit.
  • When a TFSA balance is transferred to another institution, if this is not done as a direct transfer it will be counted as a second contribution and the withdrawal amount will not be added to your  TFSA room until the following year.

TFSA over contributions are 1% per month over the term of the over-contribution until the year end based on the highest excess amount for the month.  There is no $2000 grace amount as with a RRSP and penalties for over contribution must be paid by June 30th.

For more information on TFSA contributions see the CRA's TFSA Guide (RC4466) which also provides you with a RC343 worksheet  for you to keep track of your contributions and withdrawals.  It is also important to review your notice of assessment that you receive from the CRA which states how much contribution room that you have in your TFSA and RRSP for the current year.  It is a good idea to compare the CRA amounts with your own records.   In addition you can get a copy of your contribution history from the CRA's My Account service.

From an article by Denise Deveau

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