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Feb 1, 2021

Whatís New In Tax? COVID-19 Edition

by Brian Quinlan
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Brian QuinlanHere are some tax and some non-tax changes for 2020 and 2021. Many changes have been enacted into law, but some were just proposed in the federal government’s Economic Statement of November 30, 2020.

 

 

Individuals

  • No changes to federal personal tax rates in 2020. The 2020 tax brackets were adjusted for inflation.
  • Payments of the Canada Emergency Response Benefit (CERB), the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit and the Canada Recovery Caregiving Benefit are taxable. An individual can have a 2020 tax liability on the amounts received as no tax was withheld on the CERB and only 10% withheld on the other COVID-19 benefits. Canada Revenue Agency (CRA) will issue T4A slips to report COVID-19 income and tax withheld.
  • An individual is required to repay 50 cents of each dollar of CRB received to the extent their income (from all sources except the CRB) exceeds $38,000.
  • The 2019 basic personal tax credit amount threshold was $12,069 for everybody. There is now a range for the threshold. The maximum threshold for 2020 is $13,229. This can be claimed by individuals with income of $150,473 or less. (This maximum threshold is to increase to $15,000 by 2023.) When income is above $214,368, the threshold drops to $12,298. If income is between $150,473 and $214,368, the threshold amount will be in the range of $12,298 and $13,229.

Working From Home

  • Where an employee is required to work from home due to COVID-19, they can deduct some “home office expenses” on their 2020 personal tax return. Employees incurring modest expenses can claim a $400 tax deduction without needing to track detailed expenses.
  • Where expenses are not modest, the employer needs to provide the employee with tax form T2200 (or the new shorter and less complicated T2200S) completed and signed by the employer. As part of their 2020 tax return preparation, the employee needs to complete tax form T777 “Employment Expenses” to detail the types of expenses and the dollar amount of each.
  • An employee may also be entitled to claim a refund of the GST/HST included in the employment expenses noted on tax form T777. When applicable, form GST370 “Employee GST/HST Rebate” is to be completed. An employer’s signature is needed on the form. A 2020 GST/HST rebate is considered 2021 taxable income of the employee.

Businesses

  • The Canada Emergency Business Account (CEBA) is an interest-free loan of up to $60,000 (originally $40,000) from the federal government to assist with non-deferrable business expenses (e.g., payroll, rent, utilities, insurance, property tax). Where the loan is repaid by December 31, 2022, up to a maximum of $20,000 (originally $10,000) will be forgiven. If the CEBA loan is not repaid by the end of 2022 the loan becomes a three-year term loan with interest at five per cent.
  • For CEBA loans received in 2020, the potential forgivable portion is to be included in income in 2020 even though the forgiveness did not occur in 2020. A business (incorporated or not) that received a $40,000 CEBA in 2020 will need to report a $10,000 income inclusion in completing their tax return. In the end if the amount is not forgiven, a tax deduction would then be claimed.
  • Amounts received for the Canada Emergency Wage Subsidy, the Temporary Wage Subsidy and the Canada Emergency Rent Subsidy are subject to tax.
  • The federal corporate tax rate stayed at nine per cent on the first $500,000 of business income earned by a Canadian-controlled Private Corporation (CCPC) and 15% on the excess. The tax rates on investment income earned in a corporation remained at 38 1/3% on dividends and 38 2/3% on interest and taxable capital gains.

Parents

  • In 2021, additional support is being provided to parents entitled to receive the Canada Child Tax Benefit. The amount of additional support is based on the number of children under six and the level of family income.
  • $1,200 per child is available when family income is $120,000 or less and $600 per child when family income is greater than $120,000.
  • Seniors
  • Registered Retirement Income Fund (RRIF) withdrawal. The mandatory minimum RRIF withdrawal amount was reduced by 25% in 2020.
  • Old Age Security (OAS). In 2020, those receiving OAS received a special tax-free payment of $300. The payment was $500 if the senior was eligible for the Guaranteed Income Supplement (GIS). The income threshold for OAS “clawback” begins at $79,054 for 2020. A 100% clawback occurs when 2020 income is $128,149 or greater.

Investing, Saving And Retirement

  • Tax-Free Savings Account (TFSA). The annual contribution limit remains at $6,000 for 2021. As of January 1, 2021, the cumulative TFSA contribution limit is $75,500 for an individual who was at least 18 when TFSAs were introduced in 2009.
  • Registered Retirement Savings Plan (RRSP). The maximum RRSP contribution limit for 2020 is $27,230 (achieved when 2019 earned income was at least $151,278) and $27,830 for 2021 (achieved when 2020 earned income is at least $154,611). Where an individual is a member of a Registered Pension Plan, the RRSP contribution limit is reduced by the prior year’s Pension Adjustment (PA). The deadline to contribute to an RRSP and claim a 2020 tax deduction is March 1, 2021.
  • Canada Pension Plan (CPP). 2020 was year two of the phase-in of the CPP enhancement. The 2020 CPP contribution rate was 5.25% of maximum pensionable earnings (salary/wages/self-employment)—up from 5.10% in 2019. The 2021 rate is 5.45% and will increase to 5.95% by 2025. Maximum pensionable earnings for 2020 was $58,700, for 2021 it is $61,600 and is expected to increase to $79,400 by 2025. The maximum CPP contribution in 2021 is $3,166.45 ($6,332.90 if self-employed).

Other

  • GST/HST. In late 2020, GST/HST was removed from face masks and shields. GST/HST is to be added to foreign digital services like Netflix and Airbnb.
  • Tax-free income. In 2020, a tax-free payment of $600 was made to individuals entitled to the disability tax credit. The payment was reduced to $300 if the individual received the $300 special tax-free payment of OAS to seniors (noted above).
  • Students and apprentices. Interest is eliminated in 2021 and 2022 on the federal portion of Canada Student Loans and Canada Apprentice Loans.
  • Employee stock options: potential increase in tax on exercising options. The implementation of tax changes, announced in 2019, was deferred and will now apply to certain stock options granted after June 30, 2021.
  • Lifetime capital gains exemption. The exemption on a sale of shares of a qualified small business corporation increased to $892,218 for 2021. The exemption remains at $1,000,000 for sales of eligible farm and fishing properties.
  • Digital news subscription tax credit. For 2020 to 2024, the first $500 paid by an individual for qualifying subscriptions is eligible for a federal 15% tax credit.
  • Income tax reporting by trusts. Beginning in 2021, certain trusts, when completing a trust tax return, will need to provide information on the trustees, beneficiaries, and settlors of the trust. This may result in some trusts being required to file a tax return where there was no previous requirement to do so.
  • Work-in-process of professionals. Before 2018, Work-in-Progress (WIP)—i.e., unbilled fees) of a professional (medical doctor, dentist, veterinarian, chiropractor, lawyer, accountant) did not need to be included in the calculation of taxable income. Tax rules were introduced in 2018 for WIP to be included in taxable income over a five-year phase-in period. In 2019, a professional included 40% of year-end WIP in taxable income. For 2020 the amount increased to 60%. It is 80% in 2021 and 100% in 2022.

 

 Brian J. Quinlan, CPA, CA, CFP, TEP

Campbell Lawless LLP, Chartered Professional Accountants

bjq@clcpa.ca