Next year’s tax filing season just got a little less complicated for Canadians who found themselves working from home due to the COVID-19 pandemic.
One of the many announcements in Monday’s fiscal update was a work-from-home personal tax deduction of up to $ 400 for employees who have incurred “modest expenses” in 2020 due to remote working.
Here’s how that works, who it will benefit, and what else you need to know before next year’s tax season.
To qualify for the $ 400 deduction, you must have been working from home because of COVID-19, said Josée Cabral, a senior tax expert with H&R Block. This means the deduction won’t apply if you were already working from home when the pandemic hit, or if you were working from home for reasons other than the pandemic.
As well, the deduction is up to $ 400, depending on the amount of time you worked from home, she added.
This is the biggest announcement in the fiscal update from a personal tax point of view, said Cabral, noting that more details are expected in the coming weeks about the deduction.
Cabral said the word “reasonable” will be key when claiming work expenses — not only do you have to make sure you’re claiming eligible expenses like internet, you need to consider what percentage of each expense you can claim.
Janet Gray, an Ottawa-based certified financial planner with national firm Money Coaches Canada, said the $ 400 deduction will significantly streamline the tax season for both accountants and their clients — it doesn’t require receipts or proof of expenses, nor does it require the T2200 form from your employer.
Gray said it’s important to note that a tax deduction is not the same as a credit: a deduction reduces your taxable income, in this case by up to $ 400, while a credit reduces the actual tax you owe.
This could drop you into a lower tax bracket, she added, which would have an impact on your tax rate.
Brian Quinlan, partner at Campbell Lawless LLP, said the deduction is likely meant to make the tax process easier for anyone with minimal work-from-home costs, as well as for the government.
Those with higher costs will need to make sure their employer completes a T2200 form, he said, which does require receipts or other proof of expenses.
Prepare to pay
Quinlan cautioned that anyone who has received a COVID-19 benefit this year, be it the Canada Emergency Response Benefit (CERB) or one of the three temporary benefits, needs to prepare for a bigger tax bill than usual. CERB wasn’t taxed at the source, so you’ll owe tax on that, and the emergency benefits are only taxed 10 per cent at the source, so if your tax rate is higher than 10 per cent, you’ll still owe more on those benefits as well.
If you received the Canada Recovery Benefit (CRB) and your total income (minus the CRB) is more than $ 38,000, you’ll have to pay 50 cents of each CRB dollar back for every dollar of income over that limit.
Monday’s update also included an almost 20-per-cent bump to the Canada Child Benefit, which will provide up to $ 1,200 for every child younger than six, beginning next year. It also announced an expansion to the First-Time Home Buyer Incentive for buyers in Toronto, Vancouver and Victoria. As well, the government plans to offer grants of up to $ 5,000 for homeowners making energy-efficient improvements to their homes, with eligibility retroactive to Dec. 1, 2020.
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