New ways to hang onto more of your hard-earned money.
Whether you live in the mountains, on the prairies or enjoy life in a coastal community, Canada is an amazing country to call home. But the reality is that life in this country is expensive. It’s estimated that more than 42 per cent of household income now goes to taxes – more than housing, food and clothing combined.
As demands on household budgets continue to increase, it’s never been more important to utilize strategies that can help lower your tax bill. While it might feel a bit complicated to figure out, there’s a number of tax credits and deductions available. Your advisor or accountant can help you make sense of what will work best for you.
Home office expenses
As thousands of spare bedrooms, dining room tables, and breakfast nooks were quickly converted into makeshift work from home spaces across the country, face to face collaboration became a virtual affair - an ongoing situation for many Canadians. While the isolation from co-workers may feel challenging, a bright spot is that you may be eligible for a work from home deduction.
A new flat rate method introduced by the Canada Revenue Agency (CRA) aims to make it easier to claim work from home expenses for 2020. Those who are eligible can claim $2 for each day they were required to work from home because of the pandemic, up to a maximum of $400. Under the flat rate method, the following criteria must be met:
- Due to the COVID-19 pandemic, you worked from home in 2020, or your employer required you to work from home.
- For at least four consecutive weeks in 2020, you worked more than 50 per cent of the time from home.
- Expenses claimed are directly related to COVID-19 work from home during the specified timeframe.
Some important things to note:
- The flat rate is temporarily available for 2020.
- A T2200 form is required if you plan to use the original detailed method to claim work from home expenses.
- Only one method can be selected, so it’s worth using the CRA online calculator to see which method will generate the highest deduction.
Digital News Subscription Tax Credit
During these extraordinary times, staying informed has never been more important, and now there’s a tax credit to help offset the costs associated with digital news subscriptions. The Digital News Subscription Tax Credit (DNSTC) can be claimed on personal income tax returns for the years 2020 through 2024. Depending on how much you spend on digital news subscriptions each year, this annual tax credit could realize as much as $75 in savings each year. The tax credit is calculated at 15 per cent, up to a maximum of $500 in annual subscriptions. News outlets that qualify for this tax credit must be registered with the CRA. Here is a list.
Canada Training Credit
Upgrading your skills is a smart way to stay current with evolving technology, and a new Canada Training Credit is now available to help with these costs. Beginning in 2020, workers aged 25 to 65 can offset training fees for college, university or an eligible institution providing occupational skills training. Canadians automatically accumulate $250 annually, up to a lifetime maximum of $5,000. To use the credit, workers must have earned income between $10,000 and $150,000 and file a tax return.
Pandemic emergency funds
Government funding to help avoid financial hardship brought on by the pandemic has been welcome relief for many households, but this is taxable income that requires your attention. Here are the programs involved:
- Canada Emergency Response Benefit (CERB)
- Canada Emergency Student Benefit (CESB)
- Canada Recovery Benefit (CRB)
- Canada Recovery Sickness Benefit (CRSB)
- Canada Recovery Caregiver Benefit (CRCB)
For CERB and CESB, these programs rolled out in the first wave of federal pandemic support and no taxes were deducted at the source. Therefore, income tax will be owed for the full amount received. The CRSB, CRCB and CRB programs are part of the second wave of federal pandemic support, and 10 per cent of tax is being withheld at the source. It’s important to understand if you are in a position where taxes may be owed. Your advisor or accountant can help you look into the finer details of these programs and calculate if you will need to pay additional tax.
RRSPs and TFSAs
Along with the new tax credit programs listed above, a couple of other investment programs can help you establish some savings, while also offsetting taxes.
A Tax-Free Savings Account (TFSA) lets you contribute $6,000 annually and withdrawals are not subject to tax. It can be a great way to save for a trip, a home purchase or even have some retirement funds available outside of a Registered Retirement Savings Plan (RRSP). Unused contribution room is carried forward every year and can really add up. Since the program began in 2009, you could potentially have as much as $75,500 in contribution room.
Another way to shelter against taxes while also planning for the future is setting up regular deposits into an RRSP. Contributions are tax-deductible and investments grow tax-free within the account. While withdrawals are subject to tax, you benefit if your tax rate at that time is less than when you contributed.
Check out this Solutions article to learn more about TFSAs and RRSPs, and what might work best for you.
Taxes are an important part of maintaining a thriving Canadian economy, where roads are kept in good repair, healthcare is freely available to everyone, and our social programs are maintained. But tax credits and other programs are there to help ensure that you aren’t overpaying. A tax refund indicates you may be paying too much. Learn more about tax refunds here, and speak to your advisor about tax strategies that can help you reap more of the benefits of your hard-earned dollars.
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