Newsletters

Please email us if you would us to send you a PDF copy of this newsletter.

February 16, 2021 - UPDATED March 31, 2021

Dear Valued Client/Tax Professional:

We hope this finds you well after a challenging year for all. The IRS opened their filing season as of February 12, 2021 and we will begin processing US returns near the end of February. Please note that the filing deadline has not changed from prior years – US taxes are due MAY 17, 2021.

For 2020, the IRS has made many changes primarily due to Covid-19 relief measures with the majority applicable to those living in the US, except for Stimulus checks. Please note this letter only relates to the U.S. tax returns and all amounts are in US dollars. Please refer to our separate letter regarding information for Canadian tax filings. Thank you to everyone for your patience this last year and wishing you a healthy year.

U.S. Taxes and Filing Dates

TAXES ARE DUE - MAY 17, 2021 (note estimated payments and other payments are still due April 15

Penalties/interest are based on amounts owing. If you regularly owe – please ensure an estimated payment has been made or provide your information early.

MAY 17, 2021 Changed from April 15, 2021 for 2021 due to Covid
Filing deadline for extension or return if you are considered resident of the US.
Payment for instalment for 965 transition tax is also due April 15th, if applicable
June 15, 2021 Filing deadline for individuals outside of the US at time of filing
October 15, 2021 Filing deadline on extension

We will automatically file an extension if you are a current client. If you are new to Paterson Henn CPA, please ensure we have received your prior year tax return and we will file an extension, if applicable. We will continue to complete the returns by the original due dates, whenever possible.

Foreign Bank Account Reporting Deadline/Exemption

Filing deadline is April 15th with an automatic extension to October 15th each year.

Exchange Rates 2020
• US Treasury end of December 2020 rate: 1.275 (Used for FBAR/8938)
• US Treasury Annual 2020 rate: 1.341
• Bank of Canada Annual 2020 rate: 1.3415
Other rates may be used, depending on circumstances.

 
Non-Resident Alien 1040NR
As a non-US citizen or green card holder, you are generally filing a 1040NR for US source income such as rental, business or wages earned in the U.S., pension, or other sources such as to recover US taxes withheld above the tax treaty amount. You may not need to file if you have pension if they issue a 1042S with the correct withholding tax (generally 15%). We require the dates you were in the US when filing a 1040NR only.

If you have sold a property but did not file US returns previously, you may require an ITIN. The W-7 is completed, and a copy of your passport certified by the Passport office needs to be provided. We can discuss further.

If you sold a property during 2020, please discuss and ensure we have the sale documentation, costs, and any withholding tax information.

RENTAL DURING COVID
Many people have rental properties in the US and often they visit these during the year though this may not be the case for 2020. Rental deductions may be limited by the # of days of use. Covid-19 restrictions likely resulted in a change in your use and some rentals that could not be rented due to restrictions. The expenses for the full amount may still be applicable if the unit were available for use or could have been rented and these were not used personally. Please provide full details and we can discuss. While the IRS (and CRA) do not like continued losses, the pandemic is a different scenario. Losses may be limited to other income, but they still should be reported as they may help offset future rental income or sale of your property.

(The following section until General Information applies to persons filing as a US citizen/green card holder)

NEW FOR 2020/2021
Note that the standard deduction for 2020 is $12,400 (single) and $24,800 (married filing jointly) and $18,650 head of household. Generally, we do not require itemized deductions, such as interest, property taxes, medicals or donations, unless above the standard deduction amount as the IRS has limited many of the itemized deductions.
For 2020 and 2021 Charitable donations to US Charities up to $300 cash donations to US charities made in 2020 and $600 in 2021 can be claimed as an after standard deduction line item even if not using itemized deductions. Please provide any US charity donation slips.

STIMULUS CHECKS
The US provided a $1,200 check in 2020 and $600 in January 2021. These are applicable to US citizens/green card holders but NOT to non-resident aliens. The 2021 changes provided these will be available to US citizens married to non-resident aliens and are available even though you live outside of the US.

If you DID NOT receive the stimulus check in 2020, you will receive the amount as a refundable amount on your 2020 tax return. Please note that this is income based and we will provide a reconciliation on your 2020 return but the amount is non-taxable in both the US and in Canada.

We require the amount and date you received the check and any US/IRS slips received.

CHILD TAX BENEFITS/DEPENDENTS
As a preparer, we must ensure any dependents meet the criteria. Please provide information if your situation has changed for 2020, otherwise we will assume that you meet the criteria if children were claimed in 2019.
 
SALE OF PRIMARY RESIDENCE/US PROPERTY
The exemption as a US citizen selling their home is $250,000/single or $500,000/Married filing jointly if you sell your primary residence. This is the calculated capital gain (proceeds less cost less selling expenses) converted to US dollars, if in Canada. You must have owned it and lived in it two out of the last five years and you can only exclude one house every two years. Other exemptions and rules are extensive.

CRYPTOCURRENCY
There is a new question now on the front page of the 1040 US return. We will assume NO – please let us know if this is not correct!
At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency? Yes _____No_____

TFSA/RESPs
In March 2020, the IRS provided additional guidelines and if you have a RESP, you no longer must file a 3520/3520A. If you have had a penalty for late-filing or incomplete (usually $10,000), this penalty will be waived retroactively. Please let us know if you are in this situation and we can assist. You still will need to report the income on the US return and may have to pay taxes. We recommend investing in RESPs in a non-US person’s name, if you have a spouse that is not a US citizen.

TFSAs still require filing a 3520/3520 (or a disclosure) and you must include the investment and capital gains/losses on your US return. We recommend not investing in a TFSA. If you do, then you should let the holder know you are US so they can issue the US slips for the changes in the account.

OWNERSHIP OF A CANADIAN CORPORATION
Please discuss any new ownership in a corporation. Penalties for not reporting the activity can be $10,000. There is an easy method if dormant. There are many complications with regards to income in the company or investment income held so we can discuss planning and ways of mitigating taxes on your US return.

The following relates to all Paterson Henn CPA clients:

General Information
Our firm prepares Canadian tax returns and corporate work but also understands you may have another accountant who prepares your Canadian returns. We are happy to work with other accountants but ask you to let us know of any changes you may have to your tax situation.

Timing of your US return will be based on when we have all information, when prepared in the past and more importantly if you have owed taxes in the past. We may also have to finalize your return in May to June 15th to ensure we meet all our April 15 deadlines (for taxes owing) and to meet our Canadian tax deadlines. Our firm does our best to file your return by the appropriate deadline but will submit extensions, if necessary. Taxes are due April 15th so if you have not paid in an estimated tax payment, we recommend you do so by this deadline!

 
FILING AND DELIVERY PROCEDURES
Due to Covid, we are not meeting in person and we encourage you to provide your information to us electronically if it is securely sent through our ecourier account and is legible. You may also drop off a paper copy using our secure mail slot or during office hours. Please be mindful of other people and please wear your mask and use the sanitizer available.

We will be sending you the full copy (generally labelled CLIENT COPY) and will provide a GOVT copy with instructions on what we need signed. We can accept electronic signatures in 2020 or you can print, sign and return as you did last year. We generally efile all returns unless there is an exclusion (such as Hawaii state returns with a foreign address). Please note this CLIENT COPY is the exact copy we would be printing but the printed copy may not be available until a later date.

Please advise us if the Client copy received electronically is sufficient to save administration, paper and to reduce contact during Covid.

Payment: We appreciate prompt payment by etransfer to finance@patersonhenn.com or visa/mastercard. Please call our office and speak to admin 250-656-7284 (Press 1 for admin) to pay by visa/mastercard (we do not store credit card numbers on file).

We have prepared a checklist/questions on the following page and we look forward to assisting you. Please contact Sheila Henn, CPA, CA at 250-656-7284 (Press 3) or sheila@patersonhenn.com if you have any questions relating to US returns. Our administrative staff are available to set up appointments or set up a guest e-courier account to securely send documents to us. You can log into to https://e-courier.ca/ with the same credentials as last year or through our website.

We look forward to assisting you this tax season and throughout the year.

Yours truly,
PATERSON HENN CPA
Chartered Professional Accountants

Sheila C Henn, CPA, CA
Partner

This information and checklist have been prepared for use for clients of Paterson Henn CPA as a guidance and should not be used as tax advice for personal situations. Please refer to source material from the IRS for certainty.
Errors & Omissions Excepted.

 
PATERSON HENN CPA 2020 U.S. Checklist

The following is the general information required, but may not be all inclusive:

Non-Resident 1040NR (not applicable if US citizen/greencard holder)

o Please check your contact information
o Dates/# days in the U.S. (not including travel days)
o U.S. Estimated Tax payments and any State payments for 2020
o Rental income and expenses including details of property taxes, insurance and repairs, etc (additional information may be required if a new rental)
o Personal use, if any, of rental
o US pension slips, business income, W-2 or other applicable US income
o Sale documents: Disbursement or legal document and information for cost adjustments

1040 – US Return – US Citizen/Greencard holder
o Has your contact information changed?
o Have any life circumstances changed? Married, separated, new children, etc.
o Child tax credits – if applicable, confirmation there are no changes to circumstances
o Stimulus checks – Provide slip, date and amount received. If you did not receive, please indicate this.
o U.S. Estimated Tax payments and any State payments for 2020. Please provide backup!
o US Tax Slips. This includes your US Social Security, although this may be excluded from your return.
o Canadian tax return – full return with Business Statement, Rental Statement and slip summary
o All other slips. (If we do not prepare your Canadian return, we may require this information to complete your US return.)
o Realized gains and losses: for US investments, investment slips will likely be received, and we require all pages of these (including all pages of 1099-INT/DIV/1099-C). For Canadian investments, we can use your Realized Gain/Loss report but do require the Purchase dates to appropriately convert to US. (Note – your broker may be able to assist to save time and fees for the US preparation).
o Tax Free Savings Account (TFSA)/Registered Education Savings Plan (RESP) statements (Year-to-date/December statements) and any slips. (Please discuss further if you have a RESP as the rules have changed and you no longer need to file a 3520/3520A for RESPs).
o Have you sold your house or other assets that should be reported? This includes your primary residence. The US has different rules than in Canada. If so, we require year of purchase, cost of purchase, proceeds and any cost of sales.
o Canadian Corporate tax filing and financial statements, if applicable
o Foreign bank account reporting and additional reporting Form 8938 if over thresholds
FBAR/8938 Filing:

o a copy of your prior year FBAR reporting (if we did not prepare this filing for you).
o The maximum value of each account, in Canadian dollars (if a US account, please let us know this).
o A copy of the bank statement, if a new account or if this is the first filing, will assist as we will need the name of the bank, branch address and account number as well as if it is a joint account. Please note that this filing can be complicated so please ask if you have any questions.
o Please provide a copy of your FBAR if you filed and amounts are greater than $200,000 USD

________________________________________

2020 US RETURN: Name:

1. Did you receive a Stimulus Check? Amount $1,200 or Date:

Are you a US citizen or green card holder? Yes No

2. Did you sell your personal residence or rental property in 2020? Y N

3. Have you provided your email address and updated contact information?

Email:

4. Do you require a paper copy of your US return (the Client Copy provided as a PDF is the full copy)?

YES PLEASE
(If mailed, a $15 charge will apply)

NO THANK YOU The PDF full copy is sufficient

Please provide any change in circumstances, comments or other information:

This information and checklist have been prepared for use for clients of Paterson Henn CPA as a guidance and should not be used as tax advice for personal situations. Further information may be requested.
Please refer to source material from the IRS for certainty.Errors & Omissions Excepted.

Please contact us if you would us to email you a PDF of this newsletter.

Dear Valued Client:

Our partners Caroline Paterson, CPA, CGA and Sheila Henn, CPA, CA would like to take this opportunity to provide information for this 2020 tax return season as we begin another challenging year. You will find more information on our website www.patersonhenn.com. Our website is updated often with our hours, newsletters, services and more. Due to the many changes this past year, this information is based on the best of our knowledge to February 11, 2021. Currently, the filing deadline has not been extended. We recommend that you file your personal tax return by April 30th (or making an instalment by April 30, 2021 for individuals with self-employment income with a filing deadline of June 15, 2021).

 Important information for the 2020 tax season - Deadline to file is Friday, April 30, 2021

If you cannot pay your tax balance, it is better to file and set up a payment plan with CRA. The government recently announced there will be automatic interest relief on taxes owing until April 30, 2022 for individuals who file their 2020 return, have taxable income of $75,000 or less and received specific COVID-19 income. Also, any CRA credits and benefits will NOT be applied to reduce 2020 debt (such as GST tax credits and Canada Child Benefits).

PATERSON HENN CPA – TAX RETURN DROP-OFF/DELIVERY INSTRUCTIONS
(Please ensure completed questionnaire is included with your information - see second attachment on email)

Due to Covid we will not be meeting with clients in person but if you have significant changes to your tax situation, please call to set up a phone call, Zoom or MS Teams appointment. Alternatively, please feel free to get in touch by email. Please refer to the attached 2020 Personal Income Tax Return Checklist and drop off your tax information at our office (we require everyone to wear a mask if they enter our office). We also accept this electronically through Ecourier (our secure web service) but ask you to ensure it is legible and provide details for any missing information. We kindly request that you have at least most of your information, rather than sending one slip at a time as you receive it. This will help us to ensure we do not miss anything, and limit time spent.

We require signatures and payment prior to efiling your tax returns. We encourage everyone to only come to the office to drop off information which can’t be emailed. We will be emailing your return electronically to you in a secure manner, whenever possible. We are implementing a new system that will making signing even easier. We will be printing and assembling all returns and will contact you in May or early June for pick up at our office. We are trying to limit the number of people in our office at any one time in order to safely protect everyone.

We will again be able to provide signatures electronically and we will continue to try to make this as efficient as possible. New for this season, we will be obtaining esignatures through TaxFolder – a system through TaxCycle, our tax software. This will require you to log in and verify specific information and then you will be able to sign using your phone, tablet or computer. More info will be provided at time of delivery.

Payment to CRA should be made online or through their website:
https://www.canada.ca/en/revenue-agency/services/make-a-payment-canada-revenue-agency.html

Payment for our fees: We appreciate prompt payment by etransfer to finance@patersonhenn.com or visa/mastercard. Please call our office and speak to Kathy or Deb at 250-656-7284 (Press 1 for admin) to pay by visa/mastercard (we do not store credit card numbers on file).

The 2020 tax season will see other changes with additional slips such as the T4A/T4E for COVID benefits and we continue to thank you for your patience as we continue to assist our businesses, not-for-profit and other clients through this challenging time. We hope the following information assists you with an overview of areas that may apply to your situation.

GOVERNMENT COVID RELIEF PROGRAMS

The Federal government implemented many programs and the provincial governments also have relief programs. You may receive an additional T4A or T4E slip for 2020 which will be available online. Many of these relief payments are taxable, although some one-time payments are non-taxable. Look for additional slips and provide these with your information.

We suggest the following website to find out more about Covid-19 benefits:
https://www.canada.ca/en/services/benefits/covid19-emergency-benefits.html

BC Recovery Benefit

Apply now for the one-time tax-free payment of up to $1,000 for eligible families/single parents and $500 for eligible individuals. Apply until June 30, 2021. The eligibility is based on your 2019 tax return so you will need your 2019 Notice of Assessment. If you did not receive your Notice of Assessment, you can obtain through CRA’s My Account.
https://www2.gov.bc.ca/gov/content/economic-recovery/recovery-benefit

BC has many support programs available. Visit: https://www2.gov.bc.ca/gov/content/safety/emergency-preparedness-response-recovery/covid-19-provincial-support/financial-benefits

NEW HOME OFFICE EXPENSE - 2020 TAX SEASON

CRA has provided a simple method for claiming a home office deduction due to the Covid-19 pandemic. There is a detailed summary on CRA’s site if you search for “home office expenses for employees”.

Please note there may be many questions about the percent of home office to use, type of expenses, what happens when you share a space, etc. Often, it may be simplest to claim the temporary flat rate. The calculation for the more detailed method is based on square footage and actual utilities, repairs and maintenance (not property tax/insurance unless commissioned employee). Internet and cell phone, if reasonable and based on actual.

There are still many unanswered questions, so it is likely simplest and most cost effective if the flat rate method is used.

The following is a general overview:

Temporary Flat Rate Method - $2/day max $400

A claim of $2/day up to a max of $400 can be included for 2020. No employer certification or receipts are required.

Employee Criteria (all conditions must be met):

• Worked from home during 2020 due the Covid-19 pandemic;
• Worked more than 50% of the time from home for a period of four (4) consecutive weeks;
• The employee is not claiming any other employment expenses; and
• The employer did not reimburse all of the employee’s home office expenses. You can still make a claim if some of the home office expenses were reimbursed.

If you meet the above, please ensure you provide the # of day and details but if you believe the amounts are significantly more, then we can use the Simplified Detailed Method – see below.

Simplified Detailed Method – T2200S Form Required from Employer

Traditionally, an employee can claim home office expenses when they have received a T2200 Declaration of Conditions of Employment. CRA has updated this form for 2020 and it is onerous for employers to complete but it is applicable in some cases, in particular commission employees. If you usually receive a T2200 for vehicle expenses, you can receive a T2200 and T2200S, though you may have to request these from your employer. We do require these forms with your tax information before claiming the employment expenses on your return. A copy will be kept on file to provide to CRA, if requested. To claim using this new simplified method, Form T2200S should be completed by your employer and you must meet the following conditions:

• You worked from home during 2020 due the Covid-19 pandemic;
• Worked more than 50% of the time from home for a period of four (4) consecutive weeks;
• Have a completed T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19 and;
• The expenses were used directly in the work during the period.

The form asks the employer to certify that you worked from home during COVID-19, whether they reimbursed you for any of the home office expenses claimed, and whether this amount was included on your T4 slip. You can claim any amounts that you were not reimbursed for.

CANADA TRAINING CREDIT

Starting in 2020, eligible workers aged 25 to 65 will accumulate a credit balance of $250 per year, up to a lifetime maximum limit of $5,000. Your credit balance can be claimed for up to one-half of the costs of taking courses or enrolling in a training program. The maximum credit for 2020 is $250. Please provide tuition fees (or other fees that have not been reimbursed by your employer) to claim on your tax return. https://www.canada.ca/en/revenue-agency/programs/about-canada-revenue-agency-cra/federal-government-budgets/budget-2019-investing-middle-class/canada-training-credit.html

DIGITAL SUBSCRIPTIONS – FOR 2020, if you pay for a digital subscription with a qualified Canadian journalism organization, you will be entitled to a non-refundable tax credit of 15% of your subscription cost UP TO $500. Make sure to check with your specific organization to ensure that they are "qualified". Your receipt will have a QCJO designation number on it. https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/deductions-credits-expenses/digital-news-subscription.html

HOME ACCESSIBILITY EXPENSE CREDIT: While not new to 2020, it is often missed. If you are 65 years or older or qualify for the disability tax credit and have made eligible renovations in your home which improve mobility and/or reduce the risk of harm, you may qualify for a federal and provincial tax credit. Note that you may be eligible to use these expenses for the federal, BC and a medical expense! CRA’s website: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-398-home-accessibility-expenses.html

THE SALE OF YOUR PRINCIPAL RESIDENCE MUST BE REPORTED ON YOUR PERSONAL TAX RETURN
In most cases the sale is not taxable but please discuss with us if you rented the property, or there are other circumstances. FORM T2091 (or T1255 for Estates) must be completed, signed, and kept on file. This form will be efiled with your return. Our office requires additional information if you have sold your residence – please visit CRA’s website for more information: See Income Tax Folio S1-F3-C2, Principal Residence

B.C.s SPECULATION AND VACANCY TAX/HOME OWNER GRANT
(Note: this is for information purposes and as a reminder. We do not need to be informed of these applications and please keep copies in your records – we do not require these for your personal tax returns.)

You should receive your speculation tax notice. DECLARE BY MARCH 31st each year.
If you own residential property in a designated taxable region of B.C. you should have received a speculation and vacancy tax declaration letter from the Province of B.C. Exemptions are available to reduce the tax to nil, such as if the residential property is your principal residence. Please visit the Province of B.C’s website for more information –
https://www2.gov.bc.ca/gov/content/taxes/speculation-vacancy-tax/how-to-declare
You can also call 1-833-554-2323.

HOME OWNER GRANT – you must apply for this each year and new for 2021, this will be online through the BC Government and not through your municipality. More information will be on your property tax notice.

•
Instalments: If your tax is greater than $3,000 you may need to pay in advance for the next year, or instalment interest may apply. For a tax year, your payments are due March 15, June 15, September 15 and December 15. Sometimes our software may calculate by a different method than what is reported on your notice. We recommend you follow the CRA Notices or call us to discuss.

US TAX RETURNS: Please refer to our separate letter and checklist.
Are you a U.S. citizen, Green Card Holder, or were you, or your parents born in the United States? You may have U.S. filing obligations. We can assist with personal US filings, including 1040, 1040NR and preparing Offshore Streamlined Disclosures (outside of tax season). Please note that we ensure all foreign tax credits are applied to reduce/eliminate double taxation.

Note that any US taxes are due April 15th, with filing either April 15th, June 15th or October 15th (on extension.) Foreign Bank Account Reporting is due April 15th with an automatic extension to October 15th.
Please phone Sheila to discuss further.

MyAccount: Please bring to our attention any unexpected notices or differences with your Notice of Assessment or if you receive a Notice of Reassessment. You will not be sent emails from CRA unless you sign up for online mail and this will require you to go into your MyAccount - sign up at: https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html
Do not click on links from CRA emails as these are scams!

MyPayment: Payments for taxes or instalments can be made online at MyPayment or online or at your local financial institution with the appropriate forms. If mailed, certain payments may be processed as per the date received.

T1135 Foreign Reporting Forms: CRA has simplified reporting if your foreign investments qualify and are between $100,000 and $250,000 (cost in Canadian dollars). This form must be filed with CRA by your tax filing deadline each year. It is important that you discuss with us any foreign owned assets and whether this form applies to avoid penalties. This is applicable if you owned specified foreign assets any time during the year with a cost of $100,000 or more Canadian. Real property such as a condo in the U.S. does not apply unless there is rental income. Remember that you also need to report worldwide income including rental or pension income. While this form is not applicable in the year you immigrate, it is important to file the following year, if applicable.

Repeated Failure to Report Income – penalty by CRA: It is important to ensure all slips and income are included. If any slips are received late or missed, please bring these in and we will amend your return!
CRA will now charge this penalty for amounts on income $500 or more. If you fail to report in 2020 and also failed to report in 2017, 2018, or 2019, then the penalty is:
Lesser of: 10% of the amount you failed to report for 2020; and 50% of the difference between the understated tax (and/or overstated credits) related to the amount you failed to report and the amount of tax withheld related to the amount you failed to report.

Note that CRA reviews slips for matching, usually in November of each year. If you receive a Notice of Reassessment, please provide or discuss as they may have included a slip in error.

Bottom line: report all income or be the one to adjust and do not wait for CRA to make the adjustment for you!

We look forward to assisting you this tax season.

PHONE 250-656-7284 or email admin@patersonhenn.com (general email), etransfers: finance@patersonhenn.com or email directly:

Caroline M Paterson, CPA, CGA Sheila C Henn, CPA, CA
caroline@patersonhenn.com                           sheila@patersonhenn.com

Paterson Henn, CPA Chartered Professional Accountants
2020 Personal Income Tax Return Checklist

Please notify us if any of the following applies:
- You have moved or any contact information has changed.
- Your marital status has changed.
- Your dependent information has changed.
- You have sold your principal residence or other real estate. (Important as penalties for not filing forms may apply)
- Changes to your health that may result in you qualifying for a Disability Tax Credit Certificate. We can provide a Form T2201 for your doctor to complete.
- You received a Notice of Assessment or Reassessment that you do not agree with.
- You have changed investment advisors or had significant changes in your income, such as retirement, etc.
- Foreign Reporting changes – this must be assessed each and every year! Have you purchased or sold a foreign rental property, or do you have a US stock portfolio that is over $100,000 Canadian (cost)?

Please note that this listing may not be complete. Please call or email if you have any questions!

1. All information slips, such as: T3, T4, T4A(OAS), T4A(P), T4E, T4PS, T4RIF, T4RSP, T5, T2200, T2202, T101, T1163, T1164, T5007, T5008, T5013, T5018(Subcontractors), RC62 and corresponding provincial slips.

2. Details of other income for which no T-slips have been received such as:
 other employment income
 business, rental and partnership income and expenses. If you have internet business activities this must be disclosed to CRA on your tax return – refer to https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/e-commerce/e-commerce.html
 alimony, separation allowances, child maintenance (including divorce agreement)
 pension income (eg, foreign pensions)
 other investment income
 professional fees
 director fees
 scholarships, fellowships, and bursaries
 CEBA LOAN for self-employed individuals – the forgivable portion of the interest-free loan under the CEBA is taxable – please provide details if applicable.

3. Details of other expenses such as:
 employment related expenses – provide Form T2200 and or Form T2200S– Declaration of Conditions of Employment (signed by employer), including working from home expenses as detailed previously in our letter
 tools acquired by tradespersons and eligible apprentice mechanics
 moving expenses – including costs of maintaining a vacant former residence – backup will be required – See T1M
 child care expenses
 adoption expenses
 alimony, separation allowances, child maintenance (including divorce agreement, and support amount that was paid)
 interest paid on qualifying student loans
 Eligible Educator School Supply Tax Credit expenses (up to $1,000)
 business, rental, and employment capital purchases such as vehicles, equipment, and buildings
 home office expenses
 business, property, and employment travel and/or motor vehicle expenses (travel logs may be required)
 interest on money borrowed to purchase investments
 investment counsel fees
 accounting, legal (in specific circumstances) and other professional fees

4. Details and receipts for:
 Registered Retirement Savings Plan (RRSP) contributions
 professional and union dues
 tuition fees for both full-time and part-time courses for you or a dependent – including form T2202 if applicable
 official charitable donation receipts (please note we will keep these and return the following year if greater than $5,000)
 medical expenses for you and dependent person(s) (including travel insurance/ expenses and certain medical related modifications to a new or existing home)
 political contributions

5. Details of capital gains and losses realized during the year. This may be obtained, in some circumstances, by contacting your investment advisor.

6. Name, address, date of birth, S.I.N., and province of residence on December 31st of the year, if changed in the current year.

7. Personal status – single, married, common-law, separated, divorced, widowed. If married or common-law, provide the spouse/partner’s income, S.I.N., and birthdate.

8. List of dependents/children – including their incomes and birth dates.

9. Details regarding RRSP – Home Buyers’ Plan withdrawals and repayments; and RRSP – Lifelong Learning Plan repayments.

10. Details of foreign property owned at any time during the year including cash, stocks, trusts, partnerships, real estate, tangible and intangible property, contingent interests, convertible property, etc. Simplified method may be used for > $100,000 but less than $250,000. If >$250,000 Required details include a description of the property, related country, maximum cost in the year, cost at year-end, income, capital gain/loss for each particular property.

For property held in an account with a Canadian securities dealer or Canadian trust company, please discuss with your financial advisor as they will be able to provide a printout to assist in this area.

11. Foreign income/US income (information not provided on slips). Please provide information for your U.S. returns and US 1040/1040NR returns (if applicable), FINCEN Form 114 (FBAR) information, any other foreign income received, or taxes paid.

This information and checklist have been prepared for use for clients of Paterson Henn CPA as a guidance and should not be used as tax advice for personal situations. Further information may be requested.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know until their return is completed what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers sit down to do their annual tax return, or wait to hear from their tax return preparer, with some degree of trepidation. In most cases taxpayers don’t know until their return is completed what the “bottom line” will be, and it’s usually a case of hoping for the best and fearing the worst.

Most taxpayers are, of course, hoping for a refund — the bigger the better. A lot would be happy to find that at least nothing is owed to the Canada Revenue Agency (CRA), or that an amount owing is not significant.

The worst-case scenario, for all taxpayers, is to find out that they are faced with a large tax bill and an imminent payment deadline, and that they just don’t have the money to make the required payment by that deadline. For those who don’t have the means to pay a tax bill out of existing resources, that likely means borrowing the needed funds.  And, while that will mean paying interest on the borrowing, the interest cost incurred will likely be less than that which would be levied by the CRA on the unpaid tax bill. 

If a tax bill can’t be paid in full out of either current resources or available credit, the CRA is open to making a payment arrangement with the taxpayer. While, like most creditors, the CRA would rather get paid on time and in full, its ultimate goal is to collect the full amount of taxes owed. Consequently, the CRA provides taxpayers who simply can’t pay their bill for the year on time and in full with the option of paying an amount owed over time, through a payment arrangement.

There are two avenues available to taxpayers who want to propose such a payment arrangement. The first is a call to the CRA’s automated TeleArrangement service at 1-866-256-1147. When making such a call, it is necessary for the taxpayer to provide his or her social insurance number, date of birth, and the amount entered on line 150 of the last tax return for which the taxpayer received a Notice of Assessment. For taxpayers who are up to date on their tax filings, that will be the Notice of Assessment for the return for the 2019 tax year. The TeleArrangement Service is available Monday to Friday, from 7 a.m. to 10 p.m., Eastern Time.

Taxpayers who would rather speak directly to a CRA employee can call the Agency’s debt management call centre at 1-888-863-8657, or can complete an online form (available at https://apps.cra-arc.gc.ca/ebci/iesl/showClickToTalkForm.action) requesting a callback from a CRA agent.

The CRA also provides on online tool, in the form of a Payment arrangement calculator (available at Payment Arrangement Calculator — Canada.ca), which allows the taxpayer to calculate different payment proposals, depending on his or her circumstances). That calculator includes interest charges since, no matter what payment arrangement is made, the CRA levies interest charges on any amount of tax owed for the 2020 tax year which is not paid on or before April 30, 2021. Interest charges levied by the CRA tend to add up quickly, for two reasons. First, the interest charged by the CRA on outstanding tax amounts is, by law, higher than current commercial rates — the rate charged from April 1 to June 30, 2021 is 5%. Second, interest charges levied by the CRA are compounded daily, meaning that each day interest is levied on the previous day’s interest charges. It is for these reasons that a taxpayer is, where at all possible, likely better off arranging private borrowing in order to pay any taxes owing by the April 30 deadline.

This year, there is one exception to the usual rules with respect to interest charges levied on late or insufficient tax payments. During 2020, millions of Canadian taxpayers applied for and received pandemic-related benefits. And, although those benefits represent taxable income to the recipients, no tax was deducted from the payments when they were made. Consequently, many benefit recipients will be facing a larger than expected tax bill when they complete their return for 2020. And, given the continuing economic and employment fallout from the pandemic, it’s likely that many of them will be unable to pay those taxes on time and in full. In recognition of that fact, the CRA has indicated that it will be providing relief from the resulting interest charges in the form of a one-year interest holiday. Specifically, taxpayers who received pandemic-related benefits during 2020 and whose income for that year was $75,000 or less, will not have to pay any interest charges on 2020 tax amounts owed until May 1, 2022. More information on the interest relief program can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/interest-relief.html.

Finally, regardless of the taxpayer’s circumstances, there is one strategy which is a bad one. Taxpayers who can’t pay their tax bill by the deadline sometimes conclude that there is no point in filing if payment can’t be made. Those taxpayers are wrong. Where an amount of tax is owed and the return isn’t filed on time, there is an immediate tax penalty imposed of 5% of the outstanding tax amount — and interest charges start accruing on that penalty amount (as well as on the outstanding tax balance) immediately. For each month that the return isn’t filed, a further penalty of 1% of the outstanding tax amount is charged, to a maximum of 12 months. Higher penalty amounts are charged, for a longer period, where the taxpayer has incurred a late-filing penalty within the past three years. In a worst-case scenario, the total penalty charges can be 50% of the tax amount owed — and that doesn’t count the compound interest which is levied on all penalty amounts, as well as on all unpaid taxes. In all cases, no matter what the circumstances, the right answer is to file one’s tax return on time. This year, for most taxpayers, that means filing on or before Friday April 30, 2021. For self-employed taxpayers (and their spouses) the filing deadline is Tuesday June 15, 2021. However, for all taxpayers, the payment deadline for all 2020 income tax owed is Friday April 30, 2021.

Detailed information on the options available to taxpayers who can’t pay their taxes on time and in full can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/making-payments-individuals/paying-your-taxes-owing.html#toc2.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2020 must be remitted to the Canada Revenue Agency (CRA) on or before Friday April 30, 2021. No exceptions and, absent extraordinary circumstances, no extensions.

Our tax system is, for the most part, a mystery to individual Canadians. The rules surrounding income tax are complicated and it can seem that for every rule there is an equal number of exceptions or qualifications. There is, however, one rule which applies to every individual taxpayer in Canada, regardless of location, income, or circumstances, and of which most Canadians are aware. That rule is that income tax owed for a year must be paid, in full, on or before April 30 of the following year. This year, that means that individual income taxes owed for 2020 must be remitted to the Canada Revenue Agency (CRA) on or before Friday April 30, 2021. No exceptions and, absent extraordinary circumstances, no extensions.

It is very much in the CRA’s interest to make paying taxes as simple and as straightforward as it can be and so the Agency offers individual taxpayers a wide range of choices when it comes making that payment. There are, in fact, no fewer than eight separate options available to individual residents of Canada in paying their taxes for the 2020 tax year. The first five options outlined below involve payment by electronic means, while the last three describe those available to taxpayers who would prefer to make their payments in person, or by sending a cheque to the CRA.

Pay using online banking

Millions of Canadians transact most or all of their banking using the online services of their particular financial institution. The list of financial institutions through which a payment can be made to the CRA is a lengthy one (available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-online-banking.html), and includes all of Canada’s major banks and credit unions.

The specific steps involved in making that payment will differ slightly for each financial institution, depending on how their online payment systems are configured. What’s important to remember is that the nature of the payment (i.e. current year tax return, as distinct from current year tax instalment payments) must be specified, and the taxpayer’s social insurance number must be provided, in order to ensure that the payment is credited to the correct account, for the correct taxation year.

It is not necessary to access any particular CRA form in order to make an online payment of taxes through one’s financial institution.

Using the CRA’s My Payment

The CRA also provides an online payment service called My Payment. There is no fee charged for the service, and it’s not necessary to be registered for any of the CRA’s other online services in order to use My Payment.

What is necessary is that the taxpayer have a debit card with a VISA Debit, Debit MasterCard, or Interac logo from a participating Canadian financial institution, as My Payment is set up to accept payment using only those cards. Anyone intending to use My Payment should also confirm that the amount of any payment to be made is within the daily or weekly transaction limits imposed by the particular financial institution.

A list of participating financial institutions for each type of card, and more details on this payment method can be found at https://www.canada.ca/en/revenue-agency/services/e-services/payment-save-time-pay-online.html.

Payment by credit card, PayPal, or Interac e-transfer

While it’s possible to pay one’s taxes using a credit card, PayPal, or Interac e-transfer, such payments can only be made through third-party service providers (that is, payments by those methods cannot be made directly to the CRA), and such third party service providers will impose a fee for the service.

There are only two such service providers — Pay Simply and Plastique — listed on the CRA website, and links to each such service are available at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-credit-card.html.

Payment through a service provider

There are a number of third-party service providers which will accept payments and remit them on the taxpayer’s behalf to the CRA. However, the majority of such services are more oriented toward providing services to businesses, and most of those listed on the CRA website do not handle payments of individual income tax amounts owed.

The full listing of third-party service providers, and the types of payments they handle, can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-a-service-provider.html.

Payment by pre-authorized debit

It’s possible to set up a pre-authorized debit (PAD) arrangement with the CRA, authorizing them to debit the account for an amount of taxes owed, on dates specified by the taxpayer.

Individuals who make instalment payments of tax throughout the year may already have such an arrangement in place and can certainly use that existing arrangement to arrange a PAD of any balance of taxes owed for the 2020 tax year. However, any such arrangement must be made at least five business days before the payment due date of April 30. A taxpayer who makes a payment of taxes only once a year is likely better off using another of the available payment methods.

There is also another option for taxpayers who have their return prepared and E-FILED by an authorized electronic filer. Such taxpayers can have that E-FILER set up a PAD agreement on their behalf in order to make a “one-time” payment for a current year tax amount owed. Such an arrangement is only for the payment of a current-year tax balance, and can’t be used for other payments like instalment payments of tax. Details on how to set up a pre-authorized debit arrangement, whether for a single payment or for recurring payments, are outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-authorized-debit.html.

Paying in person at your financial institution

For those who don’t use online banking, or simply prefer to make a payment in person, it’s possible to pay a tax amount owed at the bank. Doing so, however, requires that the taxpayer have a specific remittance form.

If the taxpayer has not received the required remittance from the CRA, it is possible to download and print that form from the CRA website. Instructions on how to do so can be found on that website at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

Paying at a Canada Post outlet

All Canada Post outlets can receive payments of individual income tax balances owed, in cash or by debit card. Once again, however, it is necessary to have a specific form to do so.

In this case, the taxpayer must have a QR code which contains the information needed for the CRA to credit the amount paid to the taxpayer’s account.

While a QR code is sometimes included on remittance forms sent to the taxpayer by the CRA, it’s also possible to generate a QR code online, through the CRA website. The link to do so can be found on that website at https://www.canada.ca/en/revenue-agency/corporate/about-canada-revenue-agency-cra/pay-canada-post.html.

Paying by cheque

While it’s not common anymore, it’s still possible to pay any tax balance owed on filing by cheque, as outlined on the CRA website at https://www.canada.ca/en/revenue-agency/services/about-canada-revenue-agency-cra/pay-cheque.html.

Such cheques are made payable to the Receiver-General of Canada, and are mailed, together with the required remittance form, to the CRA, using the address found on the back of the payment remittance form. As is the case with payments made at a financial institution, the taxpayer can print such a remittance form from the CRA’s website. Instructions on how to do so can be found at https://www.canada.ca/en/revenue-agency/services/forms-publications/request-payment-forms-remittance-vouchers.html.

The CRA also suggests that, where payment of taxes owing is made by cheque, the taxpayer should include his or her social insurance number on the memo line found on the front of the cheque. Doing so will help ensure that the payment is credited to the correct account.

It’s important for all taxpayers to realize that, whatever form of payment is used, the payment deadline of April 30 requires that the CRA receive payment by that date. The CRA considers that a payment has been made only when it actually receives that payment, or the payment is received by a member of the Canadian Payments Association (which would include most Canadian financial institutions).

The majority of payment options now available to Canadians involve online transactions or the use of third party service providers. Both such methods can mean some delay in receipt of the payment by the CRA, as a result of the time required for processing of the payment by the financial institution or third party. Consequently, taxpayers who make their tax payments online or using a third party service provider are well advised to consider that time lag in deciding when to make their payment – waiting until April 30, especially late in the day, to do so  isn’t a good idea.

Those who make their payment in person at a financial institution (using a remittance form, as outlined above) can make their payment on April 30, as the date stamped on the remittance form is considered to be the date on which such payment is received by the CRA.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2020, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2020, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2021 in order to be deducted on the return for 2020.

By the time most Canadians sit down to organize their various tax slips and receipts and undertake to complete their tax return for 2020, the most significant opportunities to minimize the tax bill for the year are no longer available. Most such tax planning or saving strategies, in order to be effective for 2020, must have been implemented by the end of that calendar year. The major exception to that is, of course, the making of registered retirement savings plan (RRSP) contributions, but even that had to be done on or before March 1, 2021 in order to be deducted on the return for 2020.

The fact that the clock has run out on most major tax planning opportunities for 2020 doesn’t mean, however, that there are no tax-saving strategies left. At this point, there are a couple of ways to minimize the tax hit for 2020 — by claiming all available deductions and credits on the return and also by making sure that those deductions and credits are claimed in the way which will give the taxpayer the most “bang for the buck”.

Everyone’s tax situation — and, therefore, tax return — is different, but most taxpayers make claims on their annual returns for medical expenses incurred and/or charitable donations made. It may seem counterintuitive or even illogical to not claim every available deduction and credit in order to obtain the best possible tax result for the year. However, for both medical and charitable tax credit claims, albeit for different reasons, there are situations in which it makes sense to defer an available claim until a future year, or to transfer the claim to another person.

Claiming charitable donations

Taxpayers are entitled to make a claim on the annual tax return for charitable donations made in the current (2020) year or any of the previous five years. The reason it can sometimes makes sense not to claim a charitable donation in the year it was made arises from the way in which the charitable donations tax credit is structured to encourage higher donations.

That credit, at both the federal and provincial/territorial levels, is a two-tier credit. Federally, the first $200 in donations receives a credit of 15% of the total donation, or $30. However, donations above the $200 level receive a credit equal to 29% of the donation amount over $200.

Take, for example, a taxpayer who makes a regular contribution to a favourite charity of $100 each month, or $1,200 per year. Where he or she claims that donation on the annual return each year, that claim will result in a federal credit of $320 ($200 × 15%, +  $1,000 × 29%). Where, however, the same taxpayer defers the claim to the following year and claims a total of $2,400 in donations on a single return, he or she will receive a federal credit of $668. ($200 × 15%, + $2,200 × 29%). Where the donations are accumulated and claimed once every five years, the federal credit received will be $1,712 ($200 × 15%, + $5,800 × 29%). Under each scenario, the total charitable donation made is the same, but the amount of credit received increases with each year that the claim is deferred. Since each of the provinces and territories provide a two-tier credit (at different rates, depending on the jurisdiction), the same result will be seen when calculating the provincial/territorial credit.

Medical expense tax credit

Notwithstanding our publicly funded health care system, there are a great (and increasing) number of medical and para-medical expenses for which coverage is not provided and which must be paid on an out-of-pocket basis. In many instances, it’s possible to claim a medical expense tax credit for those out-of-pocket costs.

The federal credit for such expenses is 15% of allowable expenses. As is usually the case, the provinces and territories also provide a credit for the same expenses, albeit at different rates.

Many taxpayers, with some justification, find the rules on the calculation of a medical tax credit claim confusing. First, there is an income threshold imposed. Medical expenses eligible for the credit are qualifying expenses which exceed 3% of net income, or (for 2020) $2,397, whichever is less. Put more practically, for 2020 taxpayers who have net income of $79,900 or more can claim medical expenses incurred over $2,397. Those with lower incomes can claim medical expenses which exceed 3% of that lower net income. For instance, a taxpayer having $35,000 in net income could claim qualifying medical expenses incurred over $1,050 (3% of $35,000).

The other aspect of the medical expense tax credit which can be confusing is the calculation of the optimal time period. Unlike most credit claims, the medical expense tax credit can be claimed for qualifying expenses which were paid in any 12-month period ending during the tax year. While confusing, such rule is beneficial, in that it allows taxpayers to select the particular 12-month period during which medical expenses (and therefore the resulting credit claim) is highest. The only restrictions are that the selected 12-month period must end during the calendar year for which the return is being filed and, of course, any expenses which were claimed on a previous return cannot be claimed again. 

While only expenses which exceed the $2,379/3% threshold may be claimed, it’s also possible to aggregate expenses incurred within a family and make a single claim for those expenses on the return of one spouse. Specifically, the rules allow families to aggregate medical expenses incurred for each spouse and for all children born in 2003 or later. While medical expenses incurred by a single family member might not be enough to allow him or her to make a claim, aggregating those expenses is very likely (especially for a family that does not have private medical insurance coverage) to mean that total expenses will exceed the applicable threshold.

In determining who will make the medical tax credit claim for a family, there are two points to remember. Since total medical expenses claimable are those which exceed the 3% of net income/$2,379 threshold, whichever is less, the greatest benefit will be obtained if the spouse with the lower net income makes the claim for total family medical expenses. However, the medical expense credit is a non-refundable one, meaning that it can reduce tax otherwise payable, but cannot create (or increase) a refund. Therefore, it’s necessary that the spouse making the claim have tax payable for the year of at least as much as the credit to be obtained, in order to make full use of that credit.

Finally, there are a huge number and variety of medical expenses which individuals and families may incur, and the rules governing which can be claimed and in what circumstances, are very specific. In some cases, for instance, a doctor’s prescription will be required, while in others it will not. The very long list of medical expenses eligible for the credit, and any ancillary requirements, such as a prescription, can be found on the Canada Revenue Agency website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/lines-33099-33199-eligible-medical-expenses-you-claim-on-your-tax-return.html.

When the pandemic was declared just over a year ago, the federal government announced a wide range of benefits to help mitigate the financial stress experienced by those who lost jobs or saw their hours (and income) reduced.

When the pandemic was declared just over a year ago, the federal government announced a wide range of benefits to help mitigate the financial stress experienced by those who lost jobs or saw their hours (and income) reduced.

The most broad-based of those programs was the Canada Emergency Relief Benefit (CERB), which was received by nearly 9 million Canadians. The rollout of the program was rapid—generally speaking, recipients could obtain benefits by direct deposit within days after completing an online application questionnaire. Inevitably, the rapid rollout of CERB gave rise to some confusion, among recipients and those who were administering the program. That confusion meant that some individuals who were not actually eligible for the CERB nonetheless received benefit payments—in some cases substantial benefit payments.

A year later, such recipients are faced with the requirement that benefits which they received but to which they were not entitled must be repaid. Nonetheless, the federal government has announced that as a matter of administrative policy, relief from such repayment obligations may be provided, mainly in circumstances where erroneous information was provided to applicants.

The beneficiaries of the relief measure announced are self-employed individuals. When the CERB program was rolled out, one of the criteria for benefit eligibility was that the applicant must have had income of at least $5,000 during the previous 12 months. For most individuals determining that figure is straightforward, but for the self-employed, the calculation is more complex.

Information given to some self-employed applicants last spring was the $5,000 threshold referred to gross self-employment income, not net income. That information was incorrect, and self-employed individuals who indicated on the application form that they had at least $5,000 in income from self-employment in the previous 12 months generally received the CERB (assuming all other criteria were met). Where, however, they had less than $5,000 in net self employment income during the qualifying period, such individuals were subsequently found not to been eligible, after all, and were required to repay CERB amounts received.

In February of this year, the federal government determined that, in light of the fact that such individuals had acted in reliance on information provided by CERB program administrators, repayment should not be required. Consequently, the government announced that:

“ … self-employed individuals who applied for the Canada Emergency Response Benefit (CERB) and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the Canada Revenue Agency or Service Canada.

"This means that, self-employed individuals whose net self-employment income was less than $5,000 and who applied for the CERB will not be required to repay the CERB, as long as their gross self-employment income was at least $5,000 and they met all other eligibility criteria.”

Of course, many self-employed individuals who would be eligible for that relief had already repaid CERB amounts received, after being advised of their ineligibility. The federal government announcement (which can be found at https://www.canada.ca/en/revenue-agency/news/2021/02/government-of-canada-announces-targeted-interest-relief-on-2020-income-tax-debt-for-low--and-middle-income-canadians.html) indicates that such amounts repaid to the federal government will be returned to those individuals. No details have yet been released on how and when that will occur.

To date, the relief to be provided to qualifying self-employed CERB recipients is the only broad-based repayment forgiveness program which has been announced by the federal government. In any other circumstances, relief of any kind may be provided only on a case-by-case basis.

Those who believe that they are required to repay CERB amounts received (or have received a communication indicating that they must do so) should also be aware of the existence of CERB repayment scams, and know to recognize such a scam. Sadly, but predictably, individuals have been contacted by scammers purporting to be from the federal government who insist that repayment of CERB amounts received must be made immediately, often by unconventional means, like pre-paid credit cards. The federal government has issued a warning with respect to such scams, advising Canadians to beware of fraudulent emails, texts or calls claiming to be from the CRA about repaying the CERB or requesting personal information. The best way to avoid becoming a victim of such scams is to be knowledgeable about the ways in which the CRA does and does not communicate with taxpayers on such matters. For instance, the CRA will never demand immediate payment by Interac e-transfer, bitcoin, prepaid credit cards, or gift cards from retailers such as iTunes or Amazon, and will never threaten a taxpayer with arrest or a prison sentence. As well, the CRA never uses text messages or instant messaging such as Facebook Messenger or WhatsApp to communicate with taxpayers about tax-related issues under any circumstance. Any text or instant message purporting to be from the CRA is a scam.

More information on how to avoid falling victim to a CERB repayment scam (or any other kind of tax scam) is outlined in detail on the CRA website at https://www.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html.

While the obligation to file a tax return recurs annually, that return form is never exactly the same from year to year. Tax brackets and allowable deduction and credit amounts change each year and, more significantly, new deductions are provided for and new credits allowed or eliminated.

While the obligation to file a tax return recurs annually, that return form is never exactly the same from year to year. Tax brackets and allowable deduction and credit amounts change each year and, more significantly, new deductions are provided for and new credits allowed or eliminated.

The changes on the individual income tax return for 2020 are perhaps not as numerous or as significant as in some prior years, but there are new credits and deductions which may be claimed, and changes to some existing filing procedures. What follows is an outline of some of the more important changes affecting individual tax filers for 2020, and where those changes can be found on the T1 return form.

Home office expense deduction claims by employees — line 22900 and Form T777S

For many years, employees who work from home more than 50% of the time or who use their home as a place to hold client meetings on regular basis have been able to deduct certain expenses when calculating taxable income for the year.

Obviously, during 2020, the number of employees who work from home increased dramatically, and the Canada Revenue Agency (CRA) has made changes to the rules governing home office expense deductions to accommodate that reality.

In previous years, a home office expense deduction was calculated by totalling all eligible expenses and claiming the percentage of those expenses which corresponded to the size of the home office relative to the entire home. For example, an individual whose home work space used 15% of the total square footage of his or her home would be able to claim 15% of eligible home office expenses.

The CRA has added a new cost to the list of eligible home office deduction expenses. Effective for the 2020 and subsequent tax years, eligible employees can include reasonable monthly home internet access fees in tallying home office expenses.

While it’s still possible to calculate and claim home office expenses for 2020 using the detailed method outlined above, the CRA has also made available a simpler method for those who don’t wish to do all of the required calculations involved in the detailed method. Using the CRA’s “quick method”, taxpayers who are eligible to claim home office expenses can simply claim $2 per day, for a maximum of 200 days. The total allowable claim using the quick method is, therefore, a deduction of $400.

Home office expenses are claimed on line 22900 of the return, and taxpayers making this claim must also complete Form T777S.

For anyone who claims home office expenses for 2020, regardless of the method used, there are rules with respect to who is eligible to make such a claim, what expenses can be claimed and what documentation is required to support those claims. Those rules, together with information on how to calculate the claim under various scenarios, are set out on the CRA website at https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/work-space-home-expenses/work-space-use.html.

Non-refundable digital news subscription tax credit — line 31350

It’s common knowledge that the field of publishing, especially the publication of news, is in a state of flux, as traditional print media adapts to the online dissemination of such news. In recognition of this reality, the federal government will be providing (for the years 2020 to 2024) a digital news subscription tax credit.

For 2020, individual taxpayers can claim up to $500 for amounts paid for qualifying subscription expenses. Generally, such qualifying expenses are those paid to Canadian print journalism organizations (i.e., not broadcast media) for a digital news subscription to content that is primarily original news.

While the maximum amount which can be claimed for such a subscription is $500 per year, that amount can be split between taxpayers, as long as the total claim does not exceed $500.

The digital news subscription tax credit is claimed on line 31350 of the 2020 tax return.

Refundable training tax credit — line 45350

Canadian taxpayers aged between 26 and 66 years of age may be able to claim a refundable tax credit for eligible tuition and other fees paid in 2020 in relation to occupational, trade, or professional training.

To qualify for the credit, such tuition fees must generally have been paid to a Canadian university or college, or to a certified Canadian institution offering occupational training. Individuals wishing to claim the credit must also have been resident in Canada throughout 2020 and must meet certain income requirements and limitations for 2020.

Each of those requirements is outlined in more detail on the CRA website at https://www.canada.ca/en/revenue-agency/services/child-family-benefits/canada-training-credit/who-can-apply.html.

Providing the NETFILE access code

The vast majority of Canadian taxpayers file their returns electronically, using NETFILE or E-FILE. At one time it was necessary, in order to NETFILE, to obtain an access code from the CRA in order to file electronically. That’s no longer the case, as the CRA now uses a taxpayer’s date of birth and social insurance number to satisfy their online filing security requirements.

This year, however, taxpayers who are using NETFILE have the option of including an access code as part of the return filed, for a different purpose. Some background is required to understand that purpose.

Taxpayers frequently contact the CRA (often through the individual’s income tax enquiries line at 1-800-959-8281) with questions about their particular tax situation. CRA representatives must, of course, confirm the identify of the person they are speaking to, in order to establish that that person is entitled to the information sought. To do so, the caller is required to answer questions beginning with their name, social insurance number, and date of birth, followed by questions which are specific to the information provided in their tax returns filed for previous years.

This year, taxpayers who include their particular access code in their return filings will be able to use information from the 2020 return as identifying information in any future contacts with the CRA, while those who choose not to provide the access code will not. (Note that such taxpayers should still be able to fulfill information security requirements by providing information filed in returns from other tax years.)

The access code which taxpayers can choose to include with the 2020 return filed was provided by the CRA on the taxpayer’s 2019 Notice of Assessment. That eight-digit alpha-numeric code can be found on page 1 of that Notice of Assessment, in the top right-hand corner.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for the 2020 filing season show that the vast majority of Canadian individual income tax returns — nearly 90%, or almost 28 million returns were filed online, using one or the other of the CRA’s web-based filing methods, or by telephone. The remaining 10% of returns were paper-filed.

Each year, the Canada Revenue Agency (CRA) publishes a statistical summary of the tax filing patterns of Canadians during the previous filing season. Those statistics for the 2020 filing season show that the vast majority of Canadian individual income tax returns — nearly 90%, or almost 28 million returns were filed online, using one or the other of the CRA’s web-based filing methods, or by telephone. The remaining 10% of returns were paper-filed.

Clearly, electronic filing is the overwhelming choice of Canadian taxpayers, and those who choose electronic filing this year have two choices — NETFILE and E-FILE. The first of those, NETFILE (used last year by just under 33% of tax filers), involves preparing one’s return using software approved by the CRA and filing that return on the Agency’s website, using the NETFILE service. The second method, E-FILE, involves having a third party file one’s return online. Almost always, the E-FILE service provider also prepares the return which they are filing. And, it seems that most Canadians want to have little to do with the preparation of their own returns, as last year 57% of all the individual income tax returns filed came in by E-FILE.

The majority of Canadians who would rather have someone else deal with the intricacies of the Canadian tax system on their behalf can find information about E-FILE on the CRA website at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/fl-nd/menu-eng.html. That site will also provide a listing (searchable by postal code) of authorized E-FILE service providers across Canada, and that listing can be found at https://apps.cra-arc.gc.ca/ebci/efes/epcs/prot/ntr.action.

Those who are able and willing to prepare their own tax returns and file online can use the CRA’s NETFILE service (which is available as of February 22, 2021), and information on that service can be found at http://www.cra-arc.gc.ca/esrvc-srvce/tx/ndvdls/netfile-impotnet/menu-eng.html. While there are some kinds of returns which cannot be NETFILED (for instance, a return for a non-resident of Canada, or for someone who declared bankruptcy in 2019 or 2020), the vast majority of Canadians who wish to do so will be able to NETFILE their return.

At one time, it was necessary to obtain and provide an access code in order to NETFILE. While such a code is no longer a requirement, the CRA has provided tax filers with a taxpayer-specific code which can be included with the return for 2020. That 8-digit alpha-numeric code is found (in very small type) in the top right-hand corner of the first page of the 2019 Notice of Assessment, just under the Date Issued line for that Notice of Assessment. Including the code with your return is not mandatory; however, the taxpayer will be able to use information from the 2020 return when confirming their identity with the CRA only if the code was provided on that return.

A return can be filed using NETFILE only where it is prepared using tax return preparation software which has been approved by the CRA. While such software can be found for sale just about everywhere at this time of year, approved software which can be used free of charge, or for a nominal charge, is also available. A listing of free and commercial software approved for use in preparing individual returns for 2020 can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview/certified-software-netfile-program.html.

Copies of the 2020 tax return and guide package can also be ordered online, at https://apps.cra-arc.gc.ca/ebci/cjcf/fpos-scfp/pub/rdr?searchKey=ncp%20, to be sent to the taxpayer by regular mail. Taxpayers can also download and print hard copy of the return and guide from the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package.html. In previous years, the CRA made some tax packages available in hard copy at Service Canada offices and post offices across the country. This year, however, there is no reference on the CRA website to such a distribution. Finally, the CRA will send, by regular mail, hard copy of the 2020 tax return and guide package to anyone who paper-filed a return for 2019 before November 30, 2020.

 A minority of taxpayers will have the option of filing their returns using a touch-tone telephone. That option, called File my Return service will be available to eligible low-income Canadians whose returns are relatively simple and whose tax situation remains relatively unchanged from year to year. For such taxpayers, it is important to file, even if there is no income to report, so that they receive the benefits and credits to which they are entitled. The telephone filing option is, however, available only to taxpayers who are advised by the CRA of their eligibility for the File my Return service, and those individuals will have been notified by letter during the month of February.

Finally, taxpayers who are not comfortable preparing their own returns, but for whom the cost of engaging a third party to do so is a financial hardship, have another option. During tax filing season, there are a number of Community Volunteer Tax Preparation Clinics where taxpayers can have their returns prepared free of charge by volunteers. This year, most such clinics have had to change their usual in-person operation and adopt alternate methods. Volunteers can prepare an individual’s return, for free, by videoconference, by phone, or through document drop-off. A listing of the available clinics (which is updated regularly throughout the filing season) and their method of operation this tax season can be found on the CRA website at https://www.canada.ca/en/revenue-agency/campaigns/free-tax-help.html.

While there are a number of filing options available to Canadian taxpayers, there’s no element of choice when it comes to the filing and payment deadlines for 2020 tax returns. All individual Canadians must pay the balance of any taxes owed for 2020 on or before Friday April 30, 2021 — no exceptions and, absent very unusual circumstances, no extensions.

For the majority of Canadians, the tax return for 2020 must also be filed on or before Friday April 30, 2021. Self-employed taxpayers and their spouses have until Tuesday June 15, 2021 to file their returns for 2020 (but they too must pay any balance of 2020 taxes owing on or before Friday April 30, 2021).

Income tax is a big-ticket item for most retired Canadians. Especially for those who are happily free of the requirement to make mortgage payments, the annual tax bill may be the single biggest annual expenditure they are required to make. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

Income tax is a big-ticket item for most retired Canadians. Especially for those who are happily free of the requirement to make mortgage payments, the annual tax bill may be the single biggest annual expenditure they are required to make. Fortunately, the Canadian tax system provides a number of tax deductions and credits available only to those over the age of 65 (like the age credit) or only to those receiving the kinds of income usually received by retirees (like the pension income credit), in order to help minimize that tax burden. And, in most cases, the availability of those credits is flagged, either on the income tax form which must be completed each spring or on the accompanying income tax guide.

There is, however, another income tax saving strategy which is not nearly as well-known. Even more unfortunate is the fact that the benefits of that strategy (and the ease with which it can be accomplished) aren’t readily apparent from either the tax return form or the annual income tax guide. That tax saving strategy is pension income splitting, and it’s likely the case that many taxpayers who could benefit aren’t familiar with the strategy, especially if they are not receiving professional tax planning or tax return preparation advice.

That’s a particularly unfortunate reality because pension income splitting has the potential to generate more tax savings among taxpayers over the age of 65 (and certainly those over the age of 71, for whom RRSP contributions are no longer possible) than just about any other tax planning strategy available to retirees. In addition, it’s one of the very few tax planning strategies which require no expenditure of funds on the part of the taxpayer and which can be implemented after the end of the tax year, at the time the return for that tax year is prepared and filed.

When described in those terms, pension income splitting can sound like one of those “too good to be true” tax scams, but that’s not the case. Essentially, what pension income splitting offers is a government-sanctioned opportunity for Canadian residents who are married (and, usually, where recipient spouse is aged 65 or older) to make a notional reallocation of private pension income between them on their annual tax returns, and to benefit from a lower overall family tax bill as a result.

Pension income splitting, like all forms of income splitting, works because Canada has what is called a “progressive” tax system, in which the applicable tax rate goes up as income rises. For 2020, the federal tax rate applied to about the first $48,000 of taxable income is 15%, while the federal rate applied to the next $49,000 of such income is 20.5%. So, an individual who has $97,000 in taxable income would pay federal tax of about $17,320; however, if that $97,000 was divided equally between said individual and his or her spouse, each would have $48,500 in taxable income and the total federal family tax bill would be $14,550 — a federal tax savings of almost $2,800.

The general rule with respect to pension income splitting is that a taxpayer who receives private pension income during the year is entitled to allocate up to half that income (without any dollar limit) to his or her spouse for tax purposes. In this context, private pension income means a pension received from a former employer and, where the income recipient is age 65 or older, payments from an annuity, a registered retirement savings plan (RRSP) or a registered retirement income fund (RRIF). Government source pensions, like the Canada Pension Plan or Old Age Security payments, do not qualify for pension income splitting, regardless of the age of the recipient.

The mechanics of pension income splitting are relatively simple. There is no need to transfer funds between spouses or to make any change in the actual payment or receipt of qualifying pension amounts, and no need to notify a pension administrator. Taxpayers who wish to split eligible pension income received by either of them must each file Form T1032, Joint Election to Split Pension Income for 2020, with their annual tax return. That form, which is not included in the annual tax return package, can be found on the Canada Revenue Agency (CRA) website at https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t1032.html, or can be ordered by calling 1-800-959 8281.

On the T1032, the taxpayer receiving the private pension income and the spouse with whom that income is to be split must make a joint election to be filed with their respective tax returns for 2020. Since the splitting of pension income affects the income and therefore the tax liability of both spouses, the election must be made and the form filed by both spouses — an election filed by only one spouse or the other won’t suffice. In addition to filing the T1032, the spouse who is actual recipient of the pension income to be split must deduct from income the pension income amount allocated to his or her spouse. That deduction is taken on Line 21000 of his or her 2020 return. And, conversely, the spouse to whom the pension income amount is being allocated is required to add that amount to his or her income on the return, this time on Line 11600. Essentially, to benefit from pension income splitting, all that’s needed is for each spouse to file a single form with the CRA and to make a single entry on his or her 2020 tax return.

By the end of February or early March, taxpayers will have received (or downloaded) the information slips which summarize the income received from various sources during 2020. At that time, couples who might benefit from this strategy can review those information slips and calculate the extent to which they can make a dent in their overall tax bill for the year through a little judicious income splitting.

Those wishing to obtain more information on pension income splitting than is available in the 2020 General Income Tax and Benefit Guide should refer to the CRA website at http://www.cra-arc.gc.ca/pensionsplitting/, where more detailed information is available.

Over the past month, millions of Canadians have received what was probably an unexpected (and unwelcome) communication from the Canada Revenue Agency (CRA), in the form of a T4A slip. That T4A slip lists the amount of pandemic benefits which were received by the individual in 2020 and represents, more significantly, the amount which must be reported on that individual’s income tax return for 2020 — and on which tax must be paid.

Over the past month, millions of Canadians have received what was probably an unexpected (and unwelcome) communication from the Canada Revenue Agency (CRA), in the form of a T4A slip. That T4A slip lists the amount of pandemic benefits which were received by the individual in 2020 and represents, more significantly, the amount which must be reported on that individual’s income tax return for 2020 — and on which tax must be paid.

When a public health emergency was declared in March of 2020, the focus for both the federal government and benefit recipients was getting benefits into the hands of eligible recipients as quickly as possible, to help mitigate the sudden financial crisis faced by so many. No income tax was deducted from the first round of benefit payments made, and it’s likely that not many recipients were focused on the fact that tax would eventually have to be paid on the amounts received.

However, tax filing time is now upon us, and the general rule is that all benefits received during 2020 under any of the following federal programs must be reported as taxable income on the return for 2020, and tax paid on that income:

• Canada Emergency Response Benefit (CERB)
• Canada Emergency Student Benefit (CESB)
• Canada Recovery Benefit (CRB)
• Canada Recovery Caregiving Benefit (CRCB)
• Canada Recovery Sickness Benefit (CRSB)

The first program — the Canada Emergency Response Benefit — was utilized by nearly one quarter of the Canadian population, as nearly 9 million Canadians applied for partial or full CERB benefits. CERB was payable at a flat rate of $500 per week for a maximum of 28 weeks between March and September of 2020, meaning that the maximum benefit which could be received by one individual during 2020 was $14,000.

The Canada Emergency Student Benefit paid $1,250 every four weeks, for a maximum of 16 weeks, to post-secondary students who were unable to find summer or post-graduation employment due to the pandemic. The total amount payable to any one individual under the CESB program was generally $5,000, although higher amounts were paid to students who were disabled or who had dependants.

No income tax was deducted from any payments made under the CERB or CESB programs.

The last three programs — the Canada Recovery Benefit (CRB), the Canada Recovery Caregiving Benefit (CRCB) and the Canada Recovery Sickness Benefit (CRSB) — replaced the CERB and CESB benefit programs, starting in September 2020. The benefit payable under each of those programs is $500 per week, but the amount of time for which that benefit is paid varies by program. Under the CRB, which is an income replacement program, the $500 per week benefit can be paid for up to 26 weeks. Benefits can be paid for a similar time period to those who must stay home for at least 50% of the week because they must care for a child under the age of 12 or other family member because schools, daycares, or care facilities are closed due to the pandemic, or because the child or family member is sick and/or required to quarantine, or is at high risk of serious health implications. Since these benefits became available starting on September 27, 2020, the maximum benefit which could have been paid to an individual in 2020 under either program was $7,000.

The final benefit — the CRSB — is available to individuals who are ill or who are required to quarantine, but only for a two-week period, meaning that the maximum CRSB benefit payable is $1,000.

The tax treatment of CRB, CRCB, and CRSB benefits paid out does differ slightly from CERB or the CSRB, in that the federal government deducted 10% withholding tax from CRB, CRCB, and CRSB benefits paid.

Whatever the source or amount of pandemic benefit received, the tax consequences are the same. All such benefits must be reported on line 13000 of the income tax return for 2020, and included in taxable income for that year. On that line of the tax return, there is a space provided in which the kind of benefit received should be specified.

The amount of tax payable on those benefit amounts will depend on the province of residence of the recipient and the amount of other income he or she received during 2020. As a basic rule of thumb, the federal tax on benefit amounts received will be at least 15%, while provincial tax payable can range from 4% (for residents of Nunavut) to 15% (for residents of Quebec). Where the total 2020 income of benefit recipients exceeds approximately $45,000, those tax rates will be higher.

Of course, the pandemic and the resulting financial stresses and losses have not yet ended. Many Canadians are still in a precarious financial position and it’s entirely possible that paying tax on benefits received during 2020 will be difficult for such taxpayers. Where paying such tax poses a real financial hardship, there are alternatives. The CRA is willing to enter into a payment arrangement with Canadians to pay their taxes over a period of time (generally through monthly instalments) where, owing to financial hardship, those taxes can’t be paid in full as required on April 30, 2021. In addition, the federal government has announced that interest relief on late tax payments will be provided to individuals who received pandemic benefits during 2020 and have income for that year of less than $75,000.

More information on the taxation of pandemic benefits, and the relief which may be available to those who can’t pay their 2020 taxes on time and in full can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes.html.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

Two quarterly newsletters have been added—one dealing with personal issues, and one dealing with corporate issues.

They can be accessed below.

Corporate:

Issue #54 Corporate

Personal:

Issue #54 Personal