C. Lough-Li Professional Corporation provides personal tax preparation services in Calgary.
Our firm focuses on staying current on the income tax changes and legislation in order to minimize your income taxes and comply with the constant changes within the income tax regulations and legislation.
We attempt to offer a very thorough and personalized service in preparing your personal income tax returns. Our process is based on supplying you with updates in the income tax rules on a yearly basis so we can capture these changes on your personal tax return. We follow up with an initial interview for your first year of filing and on a continual basis when your personal tax situation is changing. These changes occur often with the constant changes in a person’s life, whether it is brought about by a marriage, divorce, having a child, a disability or a death and many other scenarios. Regardless we can deal with all of your income tax requirements to comply and minimize your tax liability. After the preparation of your returns we follow-up with a final interview to review these returns and answer any questions you may have. You don’t leave our office without knowing why you owe money to the government or why your refund is the amount it is.
We pride ourselves in our personal income tax process.
Contact our personal tax accountants to know more about personal income tax services provided by us.
WHAT’S NEW IN PREPARING YOUR 2020 PERSONAL INCOME TAX RETURN
TAXATION
Personal tax changes for 2020 related to COVID-19
The past year brought changes and challenges for Canadians. Many suffered job losses due to the pandemic, and they may have received federal government support payments; others found themselves working from home for all or part of the year; others may have changed how they commuted to work so that they could minimize their exposure to the virus. Any of these scenarios has implications for your 2020 personal tax return.
Home office expenses deductions for employees
Before 2020, employees could deduct home office expenses if their home office was the “place where the individual principally performs the duties of employment,” which was interpreted to mean more than 50% of the time, or if the space was used exclusively to earn employment income and was “used on a regular and continuous basis” for meeting customers or clients. Their employer would have to complete Form T2200, Declaration of Conditions of Employment. This document certifies both of the following:
- the approximate percentage of the employee’s duties performed at a home office
- whether they were reimbursed for any home office expenses
The COVID-19 pandemic required many more employees to be working from home on at least a temporary basis. In response, the government introduced several changes for 2020 to simplify the process for claiming home office expenses for both employees and employers.
If you worked from home at least 50% of the time over a period of at least four consecutive weeks in 2020 due to COVID-19, you are now eligible to claim home office expenses for 2020. Previously, the determination of whether the employee worked principally out of the home office was generally calculated over the full year. This shorter qualifying period will ensure that more employees can claim the deduction.
Two calculation methods available
A temporary flat rate method is available only in 2020 and is calculated at $2 per day worked at home (part-time or full-time), to a maximum of $400 for the year. If you use this simplified method, the employer does not need to certify the conditions of your employment on the T2200 form. This deduction can be claimed for multiple individuals in the same household if the other criteria are met. If you use the simplified method, you cannot claim any other employment expenses such as car expenses.
Alternatively, you can use the detailed method if your employer certifies the conditions of employment using Form T2200 (the original version) or T2200S (a streamlined version for those working at home due to COVID-19). You could then deduct a reasonable portion of eligible expenses that are not reimbursed by your employer. Eligible expenses for all employees include electricity, heat, water, the utilities portion of condominium fees, home internet access fees, maintenance and minor repair costs, and rent paid for the house or apartment where you live. Commissioned employees can also claim home insurance, property taxes and the lease of a cellphone, computer, tablet etc. that could reasonably relate to earning commission income.
To calculate the reasonable portion that you can deduct, you must determine the size of your workspace and divide that by the total square footage of all finished areas in your home. If the workspace has other purposes besides work, you must also prorate the expenses by the number of hours the space was used for business in a week divided by the total number of hours in the week.
The Canada Revenue Agency (CRA) has created a calculator to help employees determine their home office expenses deduction. If you are using the detailed method, the T2200 or T2200S form does not have to be filed with your tax return, but you must keep it for your records.
Other changes for employees
The CRA has also announced additional flexibility in applying rules for determining taxable benefits for employees. An employee will not be considered to have received a taxable benefit if their employer reimburses them for up to $500, supported by receipts, for computer or office equipment to enable the employee to work from home.
The CRA’s longstanding position has been that travel from your home to, and parking at, an employer’s place of business is normally considered to be a personal expense, and therefore any reimbursement by the employer would be a taxable benefit to you. However, the CRA announced that where an employee incurred commuting expenses over and above their usual commuting costs as a result of the pandemic, they will not consider it a taxable benefit if the employer reimburses or makes reasonable allowance for these expenses. This would also apply where an employee is working from home and commuted to their employer’s place of business to pick up computer or office equipment.
COVID-19 support payments to individuals
Many of the federal government’s support payments for individuals during the COVID-19 must be reported as taxable income on your 2020 personal tax return. These include the:
- Canada Emergency Response Benefit (CERB)
- Canada Emergency Student Benefit
- Canada Recovery Benefit
- Canada Recovery Caregiving Benefit
- Canada Recovery Sickness Benefit
There was some confusion about whether some self-employed individuals actually qualified for the CERB, and especially whether the $5,000 required minimum income in the 12 months before the date of application was based on gross income or net income. Any of the above payments received in 2020 must be included in taxable income in that year. If someone is later found not to be eligible to receive the CERB, they can take a deduction in the year in which they repay the funds.
The federal government announced on February 9, 2021 that self-employed individuals who applied for the CERB and would have qualified based on their gross self-employment income (instead of net self-employment income) in the prior year will not be required to repay the benefit, provided they also met all other eligibility requirements. The CRA and Service Canada will return any amounts to self employed individuals who may have already voluntarily repaid the CERB to the government.
To see how these changes affect you, you may give our office a call at 403-209-3275 – C. Lough-Li Professional Corporation.
Amounts not Taxed relating to payments received for the covid-19 period
- The one time special payment made through the GST credit program on April 9, 2020
- The one time increase in the annual Canada Child Benefit payment for $300 per child for the 2019/2020 year
- The one time payment of $300 for seniors eligible for the old age security pension with and additional $200 for senior eligible for the guaranteed income supplement
Other personal tax changes for 2020/21
In addition to the changes related to COVID-19, other significant changes will take effect that have implications to your 2020 personal tax return.
Tax filing deadline
While the deadline to file your 2019 personal tax return and pay any outstanding balance was extended in 2020, the tax filing deadline for your 2020 tax return remains April 30, 2021. Self-employed individuals and their spouses or common-law partners must file their tax returns by June 15, 2021, but any amount due must still be paid by April 30 to avoid interest charges.
On February 9, 2021, the federal government announced - that individuals with total taxable income of $75,000 or less in 2020 who received COVID 19-related income support or employment insurance benefits in that year, will not be required to pay interest on any outstanding income tax debt for the 2020 tax year until April 30, 2022. The deadline for filing their tax returns remains unchanged.
Enhanced basic personal amount
The basic personal amount (federal amount), which was $12,069 for all taxpayers in 2019, will increase in 2020, and the amount will now depend on your net income:
- If your net income was greater than or equal to $214,368, the level at which the top 33% marginal tax bracket starts, you will be able to claim a basic personal amount of $12,298.
- If your net income was lower than or equal to $150,473, the level at which the 29% tax bracket starts, you will be able to claim an enhanced basic personal amount of $13,229.
- If your net income was between these two amounts, you will have a pro-rated basic personal amount.
This new enhanced system will also apply to the maximum spousal or common-law partner amounts and the maximum amount for an eligible dependant. The graduated tax brackets and other non-refundable credit amounts (e.g., the age amount and the disability amount) increased by an inflation factor of 1.9% for 2020.
New digital news subscription tax credit
There is a new, non-refundable digital news subscription tax credit that will be available from 2020 to 2024. This tax credit is calculated at 15% of the eligible amounts paid, to a maximum of $500, to access primarily original written news in a digital format from a qualified Canadian journalism organization (QCJO).
If your subscription provides access to content in a non-digital format, or to content not from a QCJO, only the cost of a stand-alone digital subscription to the content of the QCJO is eligible for the credit; if there is no stand-alone digital subscription, one half of the amount paid is considered an eligible expense.
New Canada Training Credit (CTC)
The CTC is a new refundable tax credit introduced in 2020. If you are between 26 and 65 years old, you will accumulate $250 towards their Canada Training Credit Limit (CTCL) account in 2020 if both of the following apply to you:
- You had at least $10,000 of “working income” in 2019.
- Your total 2019 net income was less than or equal to $147,667 (the level at which the 29% tax bracket started that year).
Working income generally includes employment and self-employment income, research grants, scholarships, bursaries, prizes, and maternity and parental EI benefits.
Who qualifies, and how to calculate your CTC balance
If you meet both the minimum working income limit and the maximum total income limit in subsequent years, the CTCL account will continue to accumulate over time to a maximum of $5,000; both limits will be indexed to inflation.
You can claim up to 50% of the costs of taking a course or enrolling in a training program against the balance in your account in the year you paid the tuition. The remaining 50% of the program costs may be eligible for the tuition tax credit, as the CTC uses the same eligibility criteria as are used for the tuition tax credit. You would see the balance in your CTC account for 2020 on your notice of assessment for 2019. Any unused CTCL will expire when you turn 65.For example, Sohil was a 28-year-old Canadian resident in 2020. From 2019 to 2023, he met both the minimum working income limit and the maximum net income limit, so the balance in his notional CTCL account as reported on his 2023 notice of assessment was $1,250 (five years x $250 per year). In 2024, he enrols in a continuing education program at a local community college to upgrade his skills. The tuition he pays for the program is $2,000.
On his 2024 tax return, Sohil can claim a refundable CTC of $1,000 (50% of the $2,000 tuition), and he can claim a non-refundable tuition tax credit of 15% on the remaining $1,000 of tuition fees not eligible for the CTC. Sohil’s CTCL for 2025, assuming he meets both the working income and net income criteria for 2024, would be $500 ($1,250 opening balance – $1,000 CTC claimed in 2025 + $250 added based on his income in 2024).
Tax-exempt qualified donees
Certain not-for-profit journalism organizations were allowed to register with the CRA under a new category of tax-exempt qualified donee. Canadians may claim the charitable donation tax credit for donations to these organizations.
Capital Cost Allowance for Zero-Emission Vehicles
A first year CCA rate of 100% is effective for off-road automotive vehicles and equipment. The measures have also been expanded to include classes 54 and 55 for zero-emission vehicles for have been previously used or acquired for use.
Increased Canada Pension Plan Contributions
The new year brought in increased Canada Pension Plan (CPP) contributions designed to fund the enhanced CPP benefits in the future. However, a slight offset to those higher CPP rates exists and will be noted, as the Employment Insurance contribution rates have decreased. For more information, please see www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-enhancement.html
Carbon Pricing Mechanism:
The federal government’s new carbon pricing mechanism will also come into effect in those provinces that do not have a carbon pricing mechanism of their own. This will result in increased costs for fossil fuels and the services that they support starting in April 2019, with a direct rebate to consumers to offset some of those cost increases.
Lifetime Capital Gains Exemption
- The lifetime capital gains exemption has increased based on the indexation to inflation from $866,912 to 883,384 in 2020. Qualified farm or fishing property continues to be eligible for a maximum total limit of $1,000,000 for 2020.
Tax-Free Savings Account
- For 2020, the tax-free savings account will have a proposed annual contribution limit of $6,000 subject to inflation for subsequent years.
Non-eligible and Eligible dividend rates
In 2020, non-eligible dividends had the gross-up factor of 15% and the dividend tax credit adjustment is 9/13 for an effective dividend tax credit rate of 10.3845%. In 2020 the eligible dividends had a gross up factor of 38% and the dividend tax credit adjustment is 6/11 for an effective dividend tax credit rate of 20.73%.
Registered Retirement Savings Plan
- Your maximum RRSP limits for 2019 and 2020 respectively are $26,500, $27,230.
Marginal Rates
There have been no changes in the overall federal marginal tax rates; however, the thresholds for taxable income have been changed as indicated in the comparison table below.
| 2020 Taxable Income | Federal | Alberta | 2020 Taxable Income |
|---|---|---|---|
| On the first $48,535 | 15.0% | 10% | On the first $131,220 |
| $48,536 up to 97,069 | 20.5% | 12% | $131,221 up to 157,464 |
| $97,070 up to 150,473 | 26.0% | 13% | 157,465 up to 209,952 |
| $150,474 up to 214,368 | 29.0% | 14% | 209,953 up to 314,928 |
| Over $214,369 | 33.0% | 15% | Over $314,929 |
Other changes for 2021
Tax brackets and non-refundable tax credits
The federal tax brackets and most non-refundable credit amounts will increase by 1.0% for 2021. The enhanced amounts for the basic personal amount and the maximum amounts for spouses and eligible dependants will be $13,808, in order to achieve the government’s target of $15,000 for 2023.
Employment Insurance and Canada Pension Plan
Employment Insurance premiums remain unchanged for 2021, but the maximum insurable earnings have increased from $54,600 in 2020 to $56,300.
The maximum pensionable earnings for the Canada Pension Plan have increased from $58,700 in 2020 to $61,600; the employee and employer contribution rates have also increased from 5.25% to 5.45% in 2021.
The contribution limit for Tax Free Savings Accounts remains unchanged at $6,000 for 2021.
Treatment of certain stock options
The 2019 federal budget proposed changes to the preferential tax treatment of stock options for employees of large, long-established, mature companies. As a result of a continuing consultation process, the federal government announced in December 2019 that the implementation of these changes would be delayed. These will apply to stock options granted after June 2021.
Find out more about personal income tax services in Calgary by scheduling an appointment with our personal tax accountants or calling our office at (403) 209-3275.
C. Lough-Li Professional Corporation - accounting firm in Calgary provides: Accounting And Assurance Services | Audit Services | Income Tax Services | Personal Income Tax Services | Corporate and Business Income Tax Services | Estate Planning and Succession Planning | Not-For-Profit and Charity Income Tax Services | Bookkeeping Service | Payroll Services | Financial Consulting Services
Our personal tax accountants at C. Lough-Li Professional Corporation service the entire Calgary and surrounding areas.