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COVID-19 Interest Relief for Personal Taxpayers – But Penalties Still Apply!

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Under normal circumstances, CRA will be begin charging compound daily interest starting May 1st, 2021 on unpaid taxes owing for the 2020 tax year. However, due to COVID-19, CRA introduced temporary interest relief if all eligibility criteria listed below are met.  If eligible, you will not have to pay interest on any taxes owing from your 2020 taxes until April 30, 2022 – essentially a deferral of tax payment by one year without cost.  Please note that you still need to file your taxes by April 30th, 2021 to avoid paying late filing penalties.

Interest relief will automatically be applied on 2020 taxes owing if all of the following conditions are met:

  • Your total 2020 taxable income is $75,000 or less
  • You have received at least one of the following COVID-19 benefits in 2020:
    • Canada Emergency Response Benefit (CERB)
    • Canada Emergency Student Benefit (CESB)
    • Canada Recovery Benefit (CRB)
    • Canada Recovery Caregiving Benefit (CRCB)
    • Employee Insurance (EI) benefit
    • Provincial or territorial emergency benefits
  • You filed your 2020 income tax and benefit return

It is important to note that this interest relief will only apply to your taxes owing on your 2020 tax return and not on previous or other amounts outstanding with the CRA.  Penalty charges (such as false statement, omission or late filing) are not included as part of this interest relief. Therefore, it is crucial to file your personal tax by April 30, 2021.

If you file your return late, the CRA will impose a penalty of 5% of your taxes owing and unpaid on May 1, 2021.  This penalty will increase by 1% for each month filed late, up to a maximum of 12 months, i.e. an additional 17% maximum penalty on your 2020 balance owing.

For individuals with business income, you have until June 15 to file your tax return and late filing penalty will not start until June 16, 2021.

Filing taxes on time will save you unnecessary penalties and will ensure any benefits and credit payments that you are entitled will not be disrupted.

Canada Emergency Wage Subsidy “CEWS” more updates…

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You need to know how this important subsidy program works for March 14th, 2021 to June 5th, 2021:

This is how the revenue declines and the subsidy rates tie together:

Revenue DeclineCEWS Subsidy Rate
70% and over75%
50-69%40% + (revenue decline – 50%) X 1.75
1-49%Revenue decline X 0.8

The Reference Periods starting March 14th to June 5th are called Periods 14 to 16.

The revenue declines are calculated in relation to the following chart.  Remember if you were using the General Method in periods 5 to 13, you must continue with that method.  Same for those that were using the Alternative Method – you must stick to the method you were using before.

MethodPeriod 14 (March 14 – April 10, 2021)Period 15 (April 11 – May 8, 2021)Period 16 (May 9 – June 5, 2021)
General ApproachMarch 2021 over March 2019 or February 2021 over February 2020April 2021 over April 2019 or March 2021 over March 2019May 2021 over May 2019 or April 2021 over April 2019
Alternative ApproachMarch 2021 or February 2021 over the average of January and February 2020April 2021 or March 2021 over the average of January and February 2020May 2021 or April 2021 over the average of January and February 2020

Baseline remuneration – an update here too!

  • By default, baseline remuneration is the average weekly remuneration paid to eligible employees by the eligible employer during the period January 1, 2020 through March 15, 2020.
  • For CEWS Periods 14 through 16, eligible employers can elect to use the period of March 1, 2019 through June 30, 2019 or July 1, 2019 through December 31, 2019 to calculate the baseline remuneration.

Personal Tax Filing Again! What’s NEW!

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For many of us, it seems like yesterday that we just filed our 2019 tax returns due to the extended filing and tax payment deadline last year.  Although, we do not know if CRA will extend the 2020 tax return filing deadline, we are prepared for a back to normal filing deadline of April 30th.

There are no earth-shattering changes in the rules for your 2020 personal tax filings. But here are some of the highlighted changes that may affect some of us:

Home Office expenses

As many Canadians worked from home for most or part of 2020 due to COVID-19, CRA has relented to allow that some home office expenses can be claimed against employment income.  Please see our previous blog for details of this deduction.  In addition, CRA has an online  CRA Home Workspace Calculator, you can use this calculator to determine the amount that you can claim in your 2020 and 2021 tax returns.

Home Buyers’ Plan (HBP)

This program was set up in 1992 to assist first time home buyers to withdraw/borrow from their Registered Retirement Savings Plan (RRSP) on a tax-free basis to buy their first home. Any withdrawal amount must be repaid to their RRSP within 15 years.

As of March 19, 2019, the withdrawal limit was increased from $25,000 to $35,000.  Normally, the home to be purchased under the HPP cannot be the home that you and your spouse or common-law partner owned in the previous four-year period.  One exception to this rule is in the event of a relationship breakdown, this four-year limit will be waived for both ex-partners if they have been living apart for a minimum 90 days.  This new rule came into effect in 2020.

Digital news subscription tax credits (2020 to 2024)

This is a new credit for 2020 to support journalism and to encourage digital news subscriptions. Online subscription costs incurred up to $500 for digital news fees paid to Qualified Canadian Journalism Organization (QCJO) can be claimed as a non-refundable tax credit.  QCJO must be primarily engaged in the production of original news content with a focus on matters of general interest and reports of current events.  Currently, there is only one QCJO approved on CRA website.  Check back frequently to see if your digital subscription is on the list.

Other Tax changes announced but not yet implemented:

  1. Child Care Expenses – In normal circumstances, parents can only claim child care expenses they incurred to allow the parents to earn employment or self-employed business income.  Employment Insurance (EI) benefits is not considered eligible earned income, against which child care expenses can be claimed.  However, as a temporary tax relief measure due to COVID-19, Finance proposed allowing parents to claim child care expenses while receiving EI benefits for years 2020 and 2021.  For additional information, see Child care expense and EI for 2020 and 2021 on CRA website.
  2. Additional Benefits for Seniors – Back in September 2019, Liberals made two promises for senior if they were re-elected:
    • increase Old Age Security (OAS) by 10% for seniors older than 75 with earnings less than $77,580, resulting in additional $729 annually starting July 2020.
    • increase in CPP survivor’s benefits by 25% for survivors 65 and older, resulting in additional benefits up to $2,080 annually.

Although these benefits have not been implemented, the government is committed to these promises as addressed in the September 23, 2020 Throne Speech. Keep your eyes out for future developments. 

If you have any questions, we are here to assist.  We are ready for a smoothed personal tax season!

Work from Home

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On 15 December 2020, the Canada Revenue Agency (CRA) released detailed guidance on the home office expense deduction that employees can claim on their 2020 personal income tax return. For 2020, there will be two alternate methods by which employees may be able to claim home office expenses:

  • The new “temporary flat rate method”, which provides a deduction of $2 per workday at home (to a maximum of $400); and
  • The “detailed method”, which is similar to the existing deduction for home office expenses, except that the category of eligible expenses has been expanded to include home internet access fees.

In order to reduce the administrative burden on employers, Form T2200, Declaration of Conditions of Employment will not be required for employees to claim a deduction under the temporary flat rate method. A simplified version of Form T2200 (which has been significantly abridged from the original) will be required for employees seeking to claim only home office expenses under the detailed method.

Flat Rate MethodDetailed Method
New eligibility requirements(i) The employee worked from home in 2020 due to the COVID-19 pandemic;
(ii) The work space in the home was the place where the employee mainly (more than 50% of the time) worked for a period of at least four consecutive weeks in 2020;
(iii) The employee was required to pay at least some home office expenses (if reimbursement was received, it did not cover all expenses); and
(iv) The employee is not claiming any other employment deductions.
(i) The employee worked from home in 2020 due to the COVID-19 pandemic, or was required by their employer to work from home;
(ii) The work space in the home was the place where the employee mainly (more than 50%of the time) worked for a period of at least four consecutive weeks in 2020;
(iii) The employee was required to pay at least some home office expenses (if reimbursement was received, it did not cover all expenses); and
(iv) The employee received a signed Form T2200S or Form T2200 from their employer.
Maximum deductionFlat $2 per day worked from home to a maximum of $400. Part days count as a day.Deduct cost of office supplies and proportionate home office expenses. No maximum; however, the current year deduction cannot exceed employment income for the year.
Back up requiredNone, except for information to substantiate days worked from home.Information to substantiate days worked from home, receipts for expenses, supporting calculations, Form T2200 or Form T2200S from employer.
Eligible expensesN/A since flat $2 per day.Full deduction for office supplies such as paper, toner, etc. required to perform employment duties to the extent reasonable and not reimbursed by employer.
Proportionate utilities, home internet access fees, rent, maintenance and minor repairs (also home insurance and property taxes in the case of employees who earn commission income). The expenses must relate to the employee’s work space and to the period or periods during the year in which the employee worked from home.
T2200 requiredNoYes.
Where only office supplies and home office expenses are sought to be deducted, the abbreviated Form T2200S is appropriate for employees working from home due to the COVID-19 pandemic. For employees seeking to claim expenses in addition to work from home expenses (such as motor vehicle expenses) or who are normally required to work from home (under their contract of employment), the standard Form T2200 is required.

Canada Emergency Wage Subsidy – Dec 2020 Update

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IMPORTANT CEWS Update

The Canada Emergency Wage Subsidy, commonly known as “CEWS” has been a lifeline to many businesses. With payroll being one of the largest costs for Canadian businesses, the federal government introduced this subsidy at the beginning of the COVID-19 Pandemic.

As businesses continuing to struggle from the first wave of the pandemic and into the second, the federal government extended the much needed wage subsidy into June 2021.

Don’t Miss out – last chance to Apply:

The hard deadline to apply for CEWS for periods 1 through periods 5 (essentially claim periods in March through August) is JANUARY 31, 2021.

As the months roll forward, the deadline rolls as well.  For example, to claim for Period 6, applications needs to be submitted by end of February 2021, and so on.

Rules Changes:

Based on recent announcements, for periods 8-10 (September 27 to December 19, 2020), the declining subsidy approach has been abandoned.  Instead, the maximum subsidy will remain at 65% (40% base and 25% top-up for hard-hit businesses) of eligible wages. The government has also simplified the required reduction in revenue measurement.

Another important change is the increase in the maximum CEWS from 65% to 75% of the eligible wages   for the periods beginning December 20, 2020 through March 13, 2021 (periods 11 to 13). The breakdown of the 75% is not yet available.

When the subsidy was first introduced, there were many questions on how to handle the calculation of baseline remuneration for employees on leave of absence. The updated guidelines now include the last 90 days pay for these employees that were on long-term leave between July 1, 2019 and March 15, 2020 to be used in arriving at the baseline remuneration. This is retroactive to period 5.

Stay tuned to our blogs for all the latest news.

Canada Emergency Rent Subsidy

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On November 23, 2020, the government has provided details on the new Canada Emergency Rent Subsidy (CERS). This new subsidy program provides relief to qualifying entities who were negatively affected by COVID-19.

The CERS covers up to a maximum 65% of eligible expenses if your business has experienced a revenue drop of at least 70%. Even if your revenue drop is less than 70%, you may still qualify for a decreased version of CERS depending on how much your revenue has dropped. Also, if your business was forced to shut down due to mandatory public health orders, then the benefits you receive from the subsidy also increases.

Here are some important details about the program:

Eligibility

To qualify, you must have experienced a drop in revenue, have eligible expenses (explained below) and meet one of the following conditions:

  1. You had a CRA business number on September 27, 2020. OR
  2. You had a payroll account on March 15, 2020. OR
  3. You purchased the practice or business assets of another entity who meets the above conditions.

Despite its name, the subsidy also applies to entities that own their business location. The owned or rented property must be used primarily for your ordinary business activities. Properties that are used to primarily earn rental income do not qualify for this subsidy.

Revenue drop

Like the Canada Emergency Wage Subsidy (CEWS), the rate your revenue has dropped determines how much you receive for that period. Your drop in revenue is calculated by comparing your reference period revenue to the baseline revenue amount. Below are the first 3 claim periods

PeriodClaim periodApplication start dateReference period revenueBaseline revenue
1September 27 to October 24, 2020NowOctober 2020October 2019 OR
Average of January and February 2020
2October 25 to November 21, 2020November 30, 2020November 2020November 2019 OR
Average of January and February 2020
3November 22 to December 19, 2020December 23, 2020December 2020October 2019 OR
Average of January and February 2020

Once you have determined your revenue drop, you can then calculate your subsidy rate as below.

Your revenue dropHow to calculate your rate
Revenue drop of 70% or moreMaximum subsidy rate of 65%
Revenue drop of 50% to 70%(Revenue drop – 50%) x 1.25 + 40%
Revenue drop of less than 50%Revenue drop x 0.8

The subsidy amount is determined by multiplying the subsidy rate against total eligible expenses.

Eligible expenses

Eligible expenses are amount paid or payable in a claim period and it can be expenses such as

  • Rent
  • TMI/CAM (if applicable)
  • Property taxes
  • Insurance
  • Interest on commercial mortgage

Lockdown support

If you qualify for CERS and your business location is temporarily closed or have activities significantly restricted for a week or longer due to COVID-19 related public health order, then you may qualify for the lockdown support. The lockdown support provides an additional 25% on top of the base subsidy rate.

Please do not hesitate to give us a call if you have any questions or would like assistance with your CERS application. Our experienced SYC team is here to help!

2020 – The Best Tax Loss Selling Opportunity In Years

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What is tax loss selling anyway?

Tax loss selling is a strategy to reduce tax by triggering capital losses now and using them against capital gains. If you have realized capital gains this year, in any of the past 3 tax years or expect to realize gains in the near future, this strategy can help reduce your tax.  In a best-case scenario, it can mean triggering a refund cheque from the CRA!

To take advantage of this strategy you must sell a capital property at a loss. The most popular target for this is the proverbial “stock I never should have bought”. The target stock is trading well below the price you paid, and you see no upside in the near future. While it might be a tough thing to let go, the tax savings might be the push you need to finally dump that loser.  Let’s illustrate an example below.

This is how it works in practice

You own two securities, Charlie and Romeo.  Charlie has been a loser since you took an interest in it (you are down $15,000 from where you bought), but you have hung on to it in the hopes it will come back up. Romeo has done well (it is up $20,000 from where you bought), and you have sold Romeo at a gain to lock in the profits. The following shows the tax outcomes of selling just Romeo or taking it a step further and doing the tax loss sale of Charlie as well.

Realized Capital Gain RomeoRealized Capital Loss CharlieNet Capital GainTax Owing*
Sell Romeo only20,000020,0005,356
Sell Charlie and Romeo20,000(15,000)5,0001,339
*assuming highest tax bracket (Taxable income above 220,000) and Ontario residency.

As you can see tax-loss selling can result in significantly reduced capital gains taxes – about $4,000 in this illustration.

With all the market volatility this past year, there may be positions that you hold in your portfolio that will make good candidates for tax loss selling.  But read on – you need to BE CAREFUL.

Important considerations

  • You cannot purchase the loss shares (or a right to acquire the loss shares) during the period that begins 30 days prior to the sale or repurchase the loss shares for 30 days after the sale. If you break this rule, the CRA will deny the loss as a “superficial loss” (no tax savings for you!) and the loss will be added to the ACB of the shares purchased and no immediate benefit will be obtained.
  • Tax loss selling only works on non-registered portfolios, capital gains and losses in registered portfolios are not relevant to your tax return.
  • In order to take advantage of this tax strategy, the tax loss sale must settle in the current tax year –check with your investment advisor to ensure trades are settled on or before December 31, 2020.
  • Take a look now at your portfolios and see if there is any potential to take advantage of this great tax strategy!

Canada Government Subsidy News For Businesses

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On October 9, 2020, the Canadian government announced its intention to introduce new, targeted supports to help hard-hit businesses cope with the affects of the pandemic. It is hoped that this support will assist businesses navigate through the second wave and end up in a good position for a strong recovery.

NEW: Canada Emergency Rent Subsidy

This subsidy is designed to essentially replace the failed existing program on rent relief. It allows the tenant to apply and will hopefully provide simple and easy-to-access rent and mortgage support until June 2021 for qualifying organizations affected by COVID-19. Please read some of the highlights here.

EXPANDED: Canada Emergency Business Account (CEBA)

Canada Emergency Business Account (CEBA) has also been expanded. The highlights are that eligible businesses would be able to access the CEBA interest-free loan of up to $20,000, in addition to the original CEBA loan of $40,000. The deadline for CEBA has also been extended to December 31, 2020. Further details, including the launch date and application process will be announced in the coming days. We will keep you updated as things are rolled out.

5 Ways That Lead to $avings

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“Do not save what is left after spending but spend what is left after saving.”

– Warren Buffett

An interesting quote indeed! It actually makes a lot of sense. Life can be hectic, and when we’re tired and busy it’s easy to make decisions about money far too quickly. However, taking a step back before we spend allows us time to weigh our options and make better financial decisions. This investment of time can lead to impressive savings.

Even the simplest of strategies can reap large saving rewards. We’ve put together 5 simple things you can do NOW to help you save your money.

Know Where Your Money is Going

If you don’t have a budget, make one – budgets work and there are plenty of Apps to assist you. If you already have a budget – do you look at it? REALLY look at it? Knowing how much money you actually have and where your money is going can be a wake-up call. Get the family involved. Budgeting and the value of money are good life lessons for the next generation.

Before You Spend, Ask Yourself:

  • Do I need this? If your budget shocks you, try defining your needs from your wants. Be honest! Keeping nonessentials to a minimum can help your cash flow and protect your savings. Run the numbers and see for yourself.
  • Do I have the best deal? Whether its insurance premiums, cable, or phone plans, make it a habit to know what deals your providers are offering compared to their competitors. Don’t be shy to call your provider to let them know you’re not happy with what your paying. You may be surprised at what they might offer you. If they are not willing to budge, don’t be afraid to take your business elsewhere if you find a better deal – every little bit you save adds up over a year.
  • Is this the best price? Take advantage of coupons. If you cringe at the idea of cutting coupons and flipping through flyers – then don’t! Truth is, it’s never been easier to know where the deals are. For example, if you use an app like FLIPP, you can search for the exact item you want, find the best price, and know where to get it – in seconds. A good motto is never to pay full price for anything, when possible!

Boost Your Cash Flow

Most of us are at home far more than usual this year. Now may be the best time to look around the house and make a list of items you haven’t used in over a year (i.e. furniture, appliances, tools, etc.). Ask yourself “Do I really need this”? If not, sell it! It’s money in your pocket and could fill a need for someone else who is trying to save money.

Are there any memberships you don’t use anymore? For example, hanging on to a gym membership in the hopes that “one day” you’ll use it does not keep you in shape physically or financially.

Also, review your credit card cash back and points plans. Perhaps you can convert reward points from credit cards, Air Miles, or Aeroplan into cash or gift cards. Bottom line is, if your points plans aren’t really benefitting you, maybe it’s time to investigate other options.

Take Control of Debt

COVID-19 has made paying our bills more challenging than ever. Now is a great time to renegotiate debt. Call your bank to see if you can get a cheaper interest rate, or if there is a way to consolidate debt that makes sense for you.

Develop a Savings Plan

Have definite savings goals. Decide on a percent to save for both long-term goals like retirement, mid-term goals like a house, or short-term goals like your dream vacation. Also, don’t forget an emergency fund. Once you have a savings plan, commit to it and ensure your money is somewhere that you cannot see it or touch it until you really need to.

While these suggestions are a great place to start, there are many other ways to save money. Don’t put it off – ACT NOW and call us today. We’ll do our best to understand where you’re at and inform you of other options you may never have considered before.  

Canadian Emergency Wage Subsidy (CEWS) – UPDATE

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If you still have questions about the Canadian Emergency Wage Subsidy (CEWS) – you’re not alone. We’ve scratched our heads a few times too!

For the first sixteen weeks (Periods 1-4), eligible employers that saw a drop of at least 15% of their qualifying revenue qualifying revenue in March 2020 and 30% for the following months of April, May and June, when compared to their qualifying revenue for the same period in 2019 (or the average of January and February 2020), qualified for the wage subsidy.

However, things changed dramatically starting in Period 5. For the following twenty weeks (Periods 5-9) the wage subsidy has been modified to include ALL eligible employers that experience ANY decline in revenue for a claim period.

Just to recap, CEWS applies to you if your business:

1)    Experienced a decline in revenue when comparing the current or previous month to either:

  • the same month in 2019 (based on revenue recognized or cash received);

OR

  • an average of January and February 2020 (based on revenue recognized or cash received).

2)    Has at least one employee (arm’s-length or non-arm’s-length).

3)    Had a CRA payroll account on March 15, 2020.

Please don’t hesitate to give us a call if you have any questions or would like assistance with your CEWS application. Our experienced SYC team is here to help!

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