In March and April, all the focus shifts to taxation. If you haven’t yet started doing taxes, you better start as it will take some time to collect all the documents. The 2020 income tax returns are different as the Canada Revenue Agency (CRA) has introduced three changes in the light of the pandemic. These changes relate to the taxable income, tax breaks, and tax payments.
T4 slip includes COVID-19 cash benefits
Starting with taxable income, the CRA has made some additions to this segment this year. Did you receive any of the COVID-19 benefits, like the Canada Recovery Benefit (CRB) or Canada Emergency Response Benefit (CERB)? If you lost your job or got a pay cut because of the pandemic, you can get a maximum of $19,000 ($14,000 in CERB + $5,400 in CRB after withholding tax) in the 2020 tax year.
Generally, your employer gives you a T4 slip stating the summary of your employment earnings and deductions for the tax year. For the 2020 tax years, you will also get:
- T4A slip if your received benefits from the CRA
- T4E slip if your received benefits from Service Canada, and
- RL-1 slip if you worked or stayed in Quebec.
If you haven’t yet received the tax slip, you can look for it on MyAccount. The above slips will give you a breakdown of the taxable benefits amount and benefits repayments if any.
The CRA gives temporary home-office-expense tax benefits
The second change in the 2020 income tax returns is a temporary tax deduction specifically for 2020. The CRA keeps adding new tax benefits, but they are for a few years. As many people shifted their office to home in 2020, the CRA simplified the traditional work-from-home tax deduction.
It introduced a temporary flat rate method, wherein you can deduct up to $400 from your taxable income. To avail of this temporary benefit, you should have worked more than 50% of the time from home for a minimum of four consecutive weeks in 2020. You don’t need any documents. All you have to do is claim $2 per day for the number of days you worked from home for a maximum of 200 days ($400/2). For this calculation, do not include statutory holidays, vacations, and sick leaves.
For instance, Jason worked from home from April 1 to August 31, 2020, and didn’t take any sick leaves or vacations other than weekends. His total working days excluding weekends (when he didn’t work) will total 110 days, and he can deduct $220 from his taxable income.
The CRA gives one-time interest relief
The third change in the 2020 income tax returns is interest relief. The CRA encourages Canadians to pay their income tax on time and levies interest on any delays. It also adjusts your tax-free cash benefits like the goods and service tax (GST) refund with any outstanding income tax debt.
But for the 2020 tax year, the CRA has announced an interest relief, wherein it will not charge any interest on your outstanding income tax debt until April 30, 2022. Moreover, it will not adjust the GST or Canada Child Benefit (CCB) with your tax dues.
You can avail of this interest relief if your 2020 taxable income is $75,000 and you received COVID-19 income support like the CRB and the CERB.
The above three changes will significantly impact your 2020 tax bill. You have one year to pay the taxes. Use this time to create a tax fund in your Tax-Free Savings Account (TFSA). Invest in high-yield dividend stocks having a track record of increasing dividends, like BCE (TSX:BCE)(NYSE:BCE). BCE is Canada’s largest telecom operator and has a track record of paying incremental dividends.
BCE has accelerated its investment in expanding its 5G footprint. The company keeps investing in network infrastructure to broaden its reach and get more customers. The 5G revolution will increase its average revenue per customer. The 5G will connect more devices like cars, drones, smart cities, and smart homes to the internet. This will increase its cash flow and its dividends.
A $2,000 investment in BCE will earn you a $123 dividend income by March 2022, which you can use to pay taxes.