It is no secret that millions of Canadians lost their jobs due to the lockdowns mandated to curb the spread of COVID-19. But did you know that more than three million Canadians also began working from home? While lockdown restrictions have changed, many people who can work from home are continuing to operate remotely to ensure safety.
Some might be enjoying working from home and could continue doing so even after the pandemic is over. Businesses might also offer the option, because it can help save high overhead costs.
However, working from home means that you may be spending more on the internet, electricity, or to make your home office more productive. Fortunately, the Canada Revenue Agency (CRA) is letting professionals who are working from home deduct some of those expenses from their tax bills.
Expanded tax break
Canada has always offered a tax break for professionals who work from home. The government introduced it for remote workers who ran businesses from their homes, allowing them to claim home-office expenses on their taxes.
Calculating the home office expense was quite complicated, especially for employees working remotely for their employers. They would require filled and signed forms from their employers to verify the expenses they wanted to claim after calculating them.
The CRA has simplified the entire process by introducing a temporary flat-rate method. You can claim $2 for each day you’ve worked from home for up to a $400 write-off. If you have spent 50% of the time working from home for at least four consecutive weeks, you can claim the deduction.
While there are other requirements you need to fulfill to qualify for this tax break, there is no need to make complex calculations or signed forms from your employers. You can claim a maximum of $400 following the flat-rate method through this tax break.
Permanent tax break on passive income
Getting a tax break on your active income can ease the burden on your out-of-pocket expenses during the tax season. However, there is a way you can earn passive income without incurring taxes. You need to create a portfolio of reliable dividend stocks and store them in a Tax-Free Savings Account (TFSA).
Any earnings on assets stored within your TFSA can grow your account balance without incurring any income taxes. It means that interest earned, capital gains, and dividends can grow in your account. You can also withdraw funds from the account at any time without tax penalties. Your tax-free passive income can remain free from the clutches of the CRA.
Fortis is a staple in many investment portfolios for its reliability, stability, and constantly increasing payouts. The Canadian Dividend Aristocrat is sitting on a 47-year dividend-growth streak. It means that the company has been doing more than just paying its shareholders their dividends. The company has been increasing the payouts to help its investors earn more money for remaining invested.
Being a utility sector operator gives Fortis the advantage of predictable and virtually guaranteed cash flows regardless of the economic environment. Most of its revenue comes through highly regulated and contracted sources. Unlike many other companies trading on the TSX, Fortis already knows how much it will earn in a year. Predictable cash flows allow the company to plan ahead and ensure better returns for its investors in the process.
Any tax break that you can get will be useful after such a tough year in 2020. Additionally, creating a portfolio of reliable dividend stocks can help you generate more money that the CRA cannot touch. You can choose to let the dividends grow your account balance, reinvest it to unlock the power of compounding, or withdraw it to supplement your active income.
The TFSA can be a permanent tax break that keeps on giving as long as you remain invested, and a stock like Fortis could be the best way to begin building the portfolio.
Speaking of a stock to grow your wealth…
Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.