Written By: Sean Gardhouse
Taxes! Taxes! Taxes! It’s that time of year again. Even without all the complexities that the pandemic has created, navigating your tax return can sometimes be a daunting task. Not to worry, the professionals of Gardhouse Financial Counsel are here to help you take advantage of all the tax credits available to reduce your tax burden or beef up your refund.
One of the most prevalent topics right now is COVID-19 and it might affect your tax return too! Since March 2020, the government has given out numerous benefits such as CERB, EI, and the new Recovery Benefits: Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and Canada Recovery Caregiving Benefit (CRCB). These benefits are taxable. Unlike your pay cheque or pension where income tax is deducted at source, the CERB had no tax withheld and the Recovery Benefits only deduct 10% at source. This means it’s more likely you will owe when you file. Another common pandemic benefit for businesses was the Canada Emergency Business Account (CEBA). Initially a $40,000 loan with $10,000 forgivable, it was later expanded by another $20,000 with another $10,000 forgivable portion. The forgivable amount is taxable in the year received. Don’t forget to tell your tax professional if you received one of these loans.
Interesting Fact: If your net income is over $38,000 and you received the CRB you are essentially in a 70% tax bracket! It’s normally a 20.05% marginal tax rate but you will also be required to repay 50 cents for every dollar (50%) of net income above $38,000. The maximum that you would have to repay would be equal to the amount you received from CRB.
Many Canadians found themselves suddenly working from home. I’m told Owen Sound is apparently the “Work from Home Capital of Canada”. Now that you aren’t going into the office as much, you might be wondering what expense can I claim in my house? There are two ways of calculating these expenses, the simplified and the detailed methods. The simplified method allows you to claim $2/day that you were required to work more than 50% of the time from home over a period of at least four consecutive weeks. The detailed method requires you to measure your work space, the total area of your home and have receipts for expenses. CRA has actually created a pretty good calculator you can use if you search “CRA home office expenses” to help walk you through it. They have also created the new T2200S form for employers to complete for employees wishing to claim only home office expenses.
One of the most common tax credits is Medical Expenses. This tax credit will help reduce the amount of taxes that you owe if your eligible expenses exceeds the lesser of 3% of your net income or $2,397 for 2020. It’s a combined claim, so include your expenses, your partner’s and any eligible dependents.
Some of the things that you can claim are: dental care, chiropractor, prescription medications, medical marijuana, nursing care, hearing aids, and even gluten free food. Many of those expenses require proof from a medical professional to claim. It is important to note that you can only claim the amounts which you have not been and will not be reimbursed for.
Interesting Fact: For medical trips that are at least 40km one way you can claim a simplified amount of travel medical expenses of $0.55/km. If you had to travel at least 80km one way you can also claim a simplified meal amount of $23/meal, parking and accommodations as well! Make sure to keep a log and proof of trips in case the CRA would like to review your claim.
Many of these deductions and income situations have various caveats and requirements that would need to be verified before claiming. Unfortunately it’s difficult to code all of these various scenarios into tax software so it’s always helpful to get help from a tax professional. When submitted incorrectly or with insufficient information, the Canada Revenue Agency can be very quick to deny a sometimes valid claim. Reversing these unfortunate mishaps is possible, but takes usually far longer to complete.
Our next article will be on some of those less commonly used deductions and credits. Who knows, maybe you would qualify and never knew the deduction existed!
Written By: Sean Gardhouse