For many of us, 2020 was a much different year than we may have anticipated. As tax season approaches, you may wonder how those differences could affect your tax return. Kim Parlee speaks with Julie Seberras, a Senior Manager of Wealth Planning Support at TD Wealth, about what you should know to prepare for tax time this year.
- 2020 looks much different for us than any other year we've experienced. So as we start to think about our taxes for 2020, these changes might mean that your taxes may look different this year. Julie Seberras is the Senior Manager of Wealth Planning Support at TD Wealth. She's here for this Ask MoneyTalk question. Julie, great to see you. Your question is, "Is there anything I should know before I start preparing my taxes this year?"
Yeah, Kim, as you mentioned, 2020 is a really different year. And part of that is that there was a lot of Canadians who received government benefits because of COVID-19. So one of those benefits was the Canadian Emergency Response Benefit, which, of course, is going to be considered taxable income and does need to be included in your return for the year and could be subject to some taxes.
In addition, there was the CRB, there was the sickness benefit, as well as the caregivers benefit. These did have 10% tax withholding at source. However, you still may owe taxes come filing time. And you may have also been receiving benefits while earning self-employment income, and then you may be subject to some clawbacks or repayments when you file your taxes for 2020.
- Yeah, it's important for people to realize, even though taxes are withheld, they may not have withheld enough based on other things that are going on. So it's a good start, but you got to check in. Let me ask you, for those people who could work from home, what about work from home expenses? That's got to be different this year.
- Very different this year. So previously, anybody who was required to work from home was required to obtain from their employer a T2200 so that they could deduct those eligible expenses. CRA has simplified this process for 2020, so the first step really is to determine your eligibility. If you were required to work from home at least 50% of the time over a consecutive four-week period, you are eligible. Then you need to determine your deduction amount. So the deduction is calculated as $2 per day for every day that you were required to work at home in 2020 due to COVID-19 up to a maximum of $400.
- Now, Julie, the next thing I know you want to talk about I love because it's very much about planning for the future and taking advantage of something, actually, that's good right now and amongst everything else that's going on. This is the prescribed rate loan. What is it? How does it work?
- So how it works, Kim, is that the higher income-earning spouse would loan money to the lower income-earning spouse, where they would invest the funds and then pay tax at their lower marginal tax rate. The interest charged on the loan is set by Canada Revenue Agency's prescribed rate, which is currently at 1%. And the important thing to note is that this rate will be attached to the loan for the duration of the loan, even if the prescribed rate was to increase over time. Also, there is no maximum on the amount of the loan, and there's no maximum on the duration of the loan. So this is a really fantastic way to split income and reduce the overall tax liability for the household.
- Yeah, it's a good one. Lock and load for quite a while, as long as you can use it. Let me ask you, the time to file is going to be upon us very quickly, I'm sure. So what should people do to get organized?
- Get organized. Gather your receipts. Get in touch with CRA to consult them about rules and guidelines, as well as work with your advisor or tax professional to get you on the right track.
- Julie, thanks so much. That's Julie Seberras with TD Wealth. And if you have any questions and you would like to ask MoneyTalk a question, send that email to firstname.lastname@example.org with Ask MoneyTalk in the subject line. Ask your question. We'll find the right person to answer it for you. Then check on moneytalkgo.com. You'll find answers to so many things about life and money.