It’s been a tumultuous time, for the markets, the economy and maybe for your own personal bankbook. Despite the pandemic, this unprecedented environment offers some unique tax moves that you may want to consider if they fit your situation. Kim Parlee talks to Tannis Dawson, a High Net Worth Planner with TD Wealth.
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[MUSIC PLAYING]
ANTHONY OKOLIE: Hello and welcome to MoneyTalk's COVID-19 Daily Bulletin for Friday, May 15. I'm Anthony Okolie. In a few minutes, Kim Parlee will be speaking with Tannis Dawson, High Net Worth Planner with TD Wealth, about some unique tax strategies under the COVID-19 crisis in this week's Ask MoneyTalk. But first, here's a quick wrap of today's headlines.
Canadian existing home sales tumbled almost 57% in April as the COVID-19 locked down and stay at home orders kept buyers away from the housing market. Meanwhile in the US, retail sales in April dropped more than 16%, a record decline as consumers held off on shopping and dining.
Germany's economy has now entered into recession, suffering its biggest slump in a decade, as the economic damage in that region due to the coronavirus continues to unfold.
A different story in China, where industrial output grew by almost 4% last month, suggesting reopening efforts are beginning to gain some momentum. And finally, trade tensions between China and the US are once again heating up, as reports emerge the White House is planning to restrict China's Huawei technologies from accessing US tech markets.
And that's a wrap of today's headlines. Next, Kim Parlee's conversation with Tannis Dawson.
KIM PARLEE: The tax filing deadline for Canadians is fast approaching. And if you're one of the millions of people who are now working from home, this Ask MoneyTalk might be for you. I'm joined by Tannis Dawson. She's standing by in Winnipeg.
Tannis, the question is, I've had to work from home during the pandemic. Can I claim expenses like extra costs for heat, internet, electricity, or other work from home expenses?
TANNIS DAWSON: So the way that CRA works, and there are two rules, is in order to claim home office expenses, you have to meet one of the two tests. So the first test says that you primarily work from home.
And the way that CRA has done it is, they looked at it on a calendar year basis. So that would mean that you'd have to work from home for at least six months to be able to claim that expense. So that's kind of what they've looked at in the past.
And we're lucky, because there is a law firm that sent in their ruling to CRA, and then CRA said they will answer it. We're not sure when. And just give more guidance, because they're asking, like, can we look on it as a monthly test instead of a yearly test, and then more people would qualify.
With COVID the-- like, just the situation we're in, it's a little different, and we've never seen that before. The other test is if you always go and meet clients at home. And that test is kind of hard to meet right now, too, because even if you are meeting clients, you're doing it virtually.
And the way that CRA has always applied that test is face to face. So they want clients actually physically coming to your house to meet to meet that test. And because of it being virtual, Zoom or whatever, WebEx, whatever it is, even conference calls just on the phone, we're not meeting face to face. So we're trying to get a bit more guidance, and maybe CRA will come into the modern world.
KIM PARLEE: Let me ask you, then, Tannis. I mean, you know, so there's time A. We've got to figure out, one, if it's allowed, what the CRA says, and whether it's month by month or six months and those types of things.
But in terms of the type of expenses, let's be optimistic for a moment and hope that something might change. What are the kinds of things you might be able to claim?
TANNIS DAWSON: So if you're just an employee and you're not commissioned, then we can claim utilities. We can claim supplies that are consumed, and I'll explain a bit more on that. And then if you're renting a place, you can claim a portion of your rent.
And the portion that you can claim is, you look at what's the area that you're using to perform your duties for your employment compared to your whole house, or your whole condo, or your apartment.
And that percentage, then, if you take all your utility bills for the year and you take a percentage times six months, if that's what it is, that's the amount that you can claim. You can't claim if you bought a new chair, or you bought a printer, or you had to buy a computer, because-- or an extra screen.
Those are classified as capital expenses, and they don't allow those deductions. So you're better off to try to see if your employer will cover those costs to get covered that way. So it's similar to a cell phone. You can't claim the cost of a cell phone because it's capital, but you can claim air time, or extra usage, or long distance calls.
And internet is the same way. They figure you already have internet. So unless you upgraded it to do some-- to get better service to do it, or you've never had internet, maybe, but usually, internet's a capital cost.
KIM PARLEE: Let me ask you about-- you said rent. What about those people who have mortgages? Where does that fit into the equation?
TANNIS DAWSON: So unless you're a commissioned employee, you can't claim mortgage interest. And you can never claim mortgage, the capital portion of the mortgage. But for the mortgage interest, you can claim it if you're a commission employee, but not if you're a regular employee with no commission.
And again, it'll just be a percentage, the same percentage that you use for your home office. If you're self-employed, then it's different.
KIM PARLEE: And last question for you. Again, I'm being optimistic, and fingers crossed that the changes will be coming. But if the CRA does come through and changes the timing and allows certain things, what forms need to be filled out in order to actually be eligible for those types of things?
TANNIS DAWSON: So we need a T2200, which the employer signs to say that, yes, you are required to work at home, required to incur the cost. And so you need that form firstly. And then second, then you'll file-- you'll include it on your tax return.
So this isn't something that's going to get cash in the pocket to employees right away. You can't do it until you file your 2020 tax return, which could be next March or April, and then wait for your refund or your reduction on your tax payable.
So it's a long time out. So what we're saying is, save all the expenses, have it all there. Let's wait and see what happens. CPA has written a letter to CRA asking to waive those T2200s this year, because they know that that's going to put a burden on companies.
Because to file all of those T2200s for that many people is going to take a lot more time. So we're waiting to hear back from that, too, to see if CPA is successful in asking that.
KIM PARLEE: Great insight as always. Thanks so much, Tannis.
TANNIS DAWSON: No problem. Thank you.
[MUSIC PLAYING]
ANTHONY OKOLIE: Hello and welcome to MoneyTalk's COVID-19 Daily Bulletin for Friday, May 15. I'm Anthony Okolie. In a few minutes, Kim Parlee will be speaking with Tannis Dawson, High Net Worth Planner with TD Wealth, about some unique tax strategies under the COVID-19 crisis in this week's Ask MoneyTalk. But first, here's a quick wrap of today's headlines.
Canadian existing home sales tumbled almost 57% in April as the COVID-19 locked down and stay at home orders kept buyers away from the housing market. Meanwhile in the US, retail sales in April dropped more than 16%, a record decline as consumers held off on shopping and dining.
Germany's economy has now entered into recession, suffering its biggest slump in a decade, as the economic damage in that region due to the coronavirus continues to unfold.
A different story in China, where industrial output grew by almost 4% last month, suggesting reopening efforts are beginning to gain some momentum. And finally, trade tensions between China and the US are once again heating up, as reports emerge the White House is planning to restrict China's Huawei technologies from accessing US tech markets.
And that's a wrap of today's headlines. Next, Kim Parlee's conversation with Tannis Dawson.
KIM PARLEE: The tax filing deadline for Canadians is fast approaching. And if you're one of the millions of people who are now working from home, this Ask MoneyTalk might be for you. I'm joined by Tannis Dawson. She's standing by in Winnipeg.
Tannis, the question is, I've had to work from home during the pandemic. Can I claim expenses like extra costs for heat, internet, electricity, or other work from home expenses?
TANNIS DAWSON: So the way that CRA works, and there are two rules, is in order to claim home office expenses, you have to meet one of the two tests. So the first test says that you primarily work from home.
And the way that CRA has done it is, they looked at it on a calendar year basis. So that would mean that you'd have to work from home for at least six months to be able to claim that expense. So that's kind of what they've looked at in the past.
And we're lucky, because there is a law firm that sent in their ruling to CRA, and then CRA said they will answer it. We're not sure when. And just give more guidance, because they're asking, like, can we look on it as a monthly test instead of a yearly test, and then more people would qualify.
With COVID the-- like, just the situation we're in, it's a little different, and we've never seen that before. The other test is if you always go and meet clients at home. And that test is kind of hard to meet right now, too, because even if you are meeting clients, you're doing it virtually.
And the way that CRA has always applied that test is face to face. So they want clients actually physically coming to your house to meet to meet that test. And because of it being virtual, Zoom or whatever, WebEx, whatever it is, even conference calls just on the phone, we're not meeting face to face. So we're trying to get a bit more guidance, and maybe CRA will come into the modern world.
KIM PARLEE: Let me ask you, then, Tannis. I mean, you know, so there's time A. We've got to figure out, one, if it's allowed, what the CRA says, and whether it's month by month or six months and those types of things.
But in terms of the type of expenses, let's be optimistic for a moment and hope that something might change. What are the kinds of things you might be able to claim?
TANNIS DAWSON: So if you're just an employee and you're not commissioned, then we can claim utilities. We can claim supplies that are consumed, and I'll explain a bit more on that. And then if you're renting a place, you can claim a portion of your rent.
And the portion that you can claim is, you look at what's the area that you're using to perform your duties for your employment compared to your whole house, or your whole condo, or your apartment.
And that percentage, then, if you take all your utility bills for the year and you take a percentage times six months, if that's what it is, that's the amount that you can claim. You can't claim if you bought a new chair, or you bought a printer, or you had to buy a computer, because-- or an extra screen.
Those are classified as capital expenses, and they don't allow those deductions. So you're better off to try to see if your employer will cover those costs to get covered that way. So it's similar to a cell phone. You can't claim the cost of a cell phone because it's capital, but you can claim air time, or extra usage, or long distance calls.
And internet is the same way. They figure you already have internet. So unless you upgraded it to do some-- to get better service to do it, or you've never had internet, maybe, but usually, internet's a capital cost.
KIM PARLEE: Let me ask you about-- you said rent. What about those people who have mortgages? Where does that fit into the equation?
TANNIS DAWSON: So unless you're a commissioned employee, you can't claim mortgage interest. And you can never claim mortgage, the capital portion of the mortgage. But for the mortgage interest, you can claim it if you're a commission employee, but not if you're a regular employee with no commission.
And again, it'll just be a percentage, the same percentage that you use for your home office. If you're self-employed, then it's different.
KIM PARLEE: And last question for you. Again, I'm being optimistic, and fingers crossed that the changes will be coming. But if the CRA does come through and changes the timing and allows certain things, what forms need to be filled out in order to actually be eligible for those types of things?
TANNIS DAWSON: So we need a T2200, which the employer signs to say that, yes, you are required to work at home, required to incur the cost. And so you need that form firstly. And then second, then you'll file-- you'll include it on your tax return.
So this isn't something that's going to get cash in the pocket to employees right away. You can't do it until you file your 2020 tax return, which could be next March or April, and then wait for your refund or your reduction on your tax payable.
So it's a long time out. So what we're saying is, save all the expenses, have it all there. Let's wait and see what happens. CPA has written a letter to CRA asking to waive those T2200s this year, because they know that that's going to put a burden on companies.
Because to file all of those T2200s for that many people is going to take a lot more time. So we're waiting to hear back from that, too, to see if CPA is successful in asking that.
KIM PARLEE: Great insight as always. Thanks so much, Tannis.
TANNIS DAWSON: No problem. Thank you.
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