By Janine Rogan
Millions of Canadians are wondering how their taxes are going to be affected by the global pandemic. Some worked from home for the full year, others were laid off and received CERB, the government’s new emergency program to make sure Canadians were taken care of during the COVID-19 crisis.
Those payments ($2000 per month) were automatically deposited into many Canadians bank accounts with no tax withheld. This means there could be a surprise when you go to file your return.
The CERB payments will be treated like any other source of income, which means you’ll need to include those payments on your tax return. By now you should have received a T4E for your CERB payments – make sure you fill in the boxes correctly when you go to file your return online.
To understand how much tax you could potentially owe, it is important to understand just how much income you made in 2020 in addition to those CERB payments. Based on the total amount of income you earned in the year, you’ll be able to decipher your marginal tax bracket. Take that percentage and multiple it by the amount you received in CERB payments and you’ll have a good estimate on how much you’ll owe.
Because everyone’s tax situation is different it is impossible to know exactly how much each person will owe. Things like tax credits, income sources, loss carry forwards, and deductions will affect how much tax you owe.
Working from home
For the 2020 tax season you have a couple of choices when it comes from claiming work from home (WFH) expenses. To claim work from home expenses you’ll need to meet the following criteria
- You worked from home in 2020 due to the global COVID-19 pandemic or your employer required you to work from home
- You worked from home for than 50% of time for at least 4 consecutive weeks
- The expenses are used directly in your working from home
There are two options when it comes to calculating the amount you can claim; the temporary flat rate method, or the detailed method.
Temporary flat rate method
You may claim $2 for each day you worked from home during the year due to the COVID-19 pandemic. This maxes out at 200 days or a $400 claim for the 2020 tax year. A work day is defined as days you worked full time or part-time hours from home. Vacation, sick days, and leave of absence days do not count.
For this method you’ll be required to get your employer to sign a T2200 and you will have to calculate the actual amounts you paid in expenses and space of your home. You will only be able to claim these expenses for the part of the year that you worked from home and only for the income stream that the expenses relate to. Your expenses cannot exceed your income, and you will need to prorate the amount for the portion of your home that is used for your home office.
Here’s what you can claim:
- Utilities portion of your condo fees
- Home internet access
- Maintenance and minor repair costs
- Rent paid
If you earn commission you may also claim:
- Home insurance
- Property taxes
- Lease of a cell phone
What you cannot claim:
- Mortgage interest
- Principal mortgage payments
- Home internet connection fees
- Wall decorations
- Capital expenses (replacing windows, flooring, furnace etc)
You may also be able to claim office supplies or certain phone expenses if your employer requires you to claim those expenses.
For example, if you have $6,000 in eligible expenses and worked from home for 70% of the year then only $4,200 would be eligible. In addition, you will need to take into account the percentage of space your home office takes up. If your home office is 10% of your total square footage then you will have a claim of $420 ($4,200 * 10%). If this were the case it may save you more time and be simpler to complete the quick temporary method.
For a full breakdown of the calculations use this CRA guide.
The views and opinions expressed in this column are those of the contributor and do not necessarily reflect those of Equitable Bank. Any information provided is for information purposes only and Equitable Bank makes no representations as to the validity, accuracy, completeness or suitability of any content. You should seek the advice of a qualified professional or undertake your own research before making financial decisions. Equitable Bank is Canada’s Challenger BankTM and has become Canada’s ninth largest Schedule 1 Canadian Bank.