As of mid-March 2021, the Canada Revenue Agency (CRA) has not announced any extension to the normal 2020 tax filing deadlines. Due to the COVID-19 pandemic, there are, however, some considerations that are specific to this year’s tax season.
COVID-19 Benefits
Personal benefits
Canadians who received COVID-19-related government benefits in 2020 need to report most of these amounts on their 2020 return. Reportable amounts include the Canada Emergency Response Benefit (CERB), Canada Emergency Student Benefit (CESB), Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB), all of which are considered taxable income and should be reported on line 13000 – Other income.
The government also delivered a number of one-time payments in 2020, including a one-time GST/HST credit payment, the one-time OAS pension ($300) and GIS payments ($200), and a one-time payment to persons with disabilities (up to $600). These amounts are all tax-free and should not be reported on the 2020 return.
Depending on total 2020 income, a recipient may owe some tax on any COVID-19 benefits received. This is particularly true for CERB or CESB, since no tax was withheld when payments were made. For CRB, CRSB, or CRCB, 10% tax was withheld from payments made, but this may not be sufficient to cover taxes ultimately owing on those benefits, depending on what other income a recipient earned in 2020. The income tax deducted at source will be in Box 022 of the T4A slip, which should be included on line 43700 – Total income tax deducted.
Some CRB or CERB recipients may discover that a benefit must be returned. If the amount was returned by December 31, 2020, then the returned portion need not be included in 2020 income and no T4A should be received. If, however, a benefit was returned in 2021, tax is due on the full amount received in 2020, and a deduction can be claimed on the 2021 tax return.
If 2020 net income was more than $38,000, CRB recipients may have to repay 50% of benefits for every dollar in net income above $38,000, to a maximum of the CRB received in the year. Net income for this purpose is line 23600 of the T1 return (with some minor adjustments), and includes any CERB, CRSB, and CRCB payments received (but not payments received through the CRB.)
Business benefits
The Canada Emergency Business Account (CEBA) provides interest-free loans of up to $60,000 to businesses to help cover their operating costs where their revenues have been temporarily reduced due to the economic impacts of COVID-19. Up to $20,000 of a $60,000 loan can be forgiven if the balance is repaid by December 31, 2022.
The CRA has confirmed that the amount that is forgivable is taxable in the year that the loan is received. For instance, if a business receives a $40,000 CEBA loan in 2020, $10,000 must be included in income in 2020. Alternatively, a business could elect to not include the $10,000 in income, and instead to reduce $10,000 of non-deferable operational expenses in respect of which the CEBA loan was received. If a CEBA loan balance is not repaid by December 31, 2022, so that the forgivable portion is not forgiven, an offsetting deduction is available in the tax year in which the amount is repaid.
Limited relief for interest charges
While returns still need to be filed on time to avoid a late-filing penalty, targeted interest relief will be available to those who received COVID-19-related income support benefits, filed their 2020 income tax return, and had a total taxable income of $75,000 or less in 2020. Those qualifying won’t be charged interest on any outstanding income tax debt for the 2020 tax year until April 30, 2022.
Home office expense deduction
The CRA has set out specific guidelines for claiming home office expenses for 2020, including a temporary flat rate method and a detailed method. This was the subject of our January eFORUM article. An online calculator can be found on the CRA website to assist in this calculation.
New Credits for 2020
The enhanced basic personal amount
New for 2020 is the enhanced basic personal amount (BPA), which is a 15% non-refundable tax credit used to ensure that no tax is paid on a certain amount of basic income. For 2020, the enhanced BPA is $13,229, up over $1,000 from 2019. The enhancement is reduced on a straight-line basis for taxpayers with net incomes above $150,473 (the bottom of the second-highest tax bracket for 2020) until it has been fully phased out once a taxpayer’s income is over $214,368 (the threshold for the highest tax bracket in 2020), to ensure “the wealthiest Canadians would not benefit from this proposed change.”
Digital news subscription credit
Also new for the 2020 return is a non-refundable 15% credit for up to $500 paid for a digital news subscription. The content must be primarily original news.
Canada training credit
Starting in 2019, eligible individuals started to accumulate $250 per year toward the Canada training credit (CTC), which can reach a maximum of $5,000 after 20 years. The lesser of half tuition and other fees paid, up to the CTC limit for the year, can be claimed starting in 2020. For the 2020 tax year, the maximum CTC limit would be $250.