Tax Planning in 2020 – Five COVID-19 considerations
Canada took many steps to help individuals and businesses cope with economic stress caused by the coronavirus pandemic in 2020. Let’s look at individual tax considerations and strategies for dealing with this unusual year.
- Canada Emergency Response Benefit (CERB) is taxable. CERB payments are taxable as ordinary income, yet no income tax was withheld at source. Tax owing on CERB benefits will be based on each individual’s marginal tax rate for their entire 2020 income. The T4 income slip for 2020 will allow CRA to validate payments made under the program to request repayment of benefits incorrectly claimed by those who did not qualify.
- New government benefits are taxable. This fall the CERB has transitioned to three new benefits: the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB). These benefits are also taxable as ordinary income, and 10% tax is being withheld at source. Tax owing on these benefits will depend on each individual’s total 2020 income.
- Retirement Tax deductions could be lower in 2020. Deductions are based on contributions to RRSPs, Group RRSPs, Defined Contribution plans, and these could be lower if the contributions via payroll deduction were suspended for part of the year. In addition, tax deductions could be lower in 2021, to the extent that earned income was lower in 2020. This could impact your decision on RRSP contributions to be done in 2020 or carried forward to 2021.
- Other tax deductions could also be lower in 2020. These include items such as childcare expenses, medical services and procedures, business travel. On the other hand, if your employer required you to work from home, your employer may be able to provide you with Form T2200 which would allow you to claim a deduction for home office expenses.
- Where your income was lower in 2020, you may wish to review tax deductible items that can be carried forward, such as tuition and education amounts, moving expenses, charitable donations, and medical expenses. Likewise, any capital losses can be deducted against capital gains in the current year or carried back three years or carried forward indefinitely. Careful thought is needed as to the year you want to claim any capital losses.
As financial advisors, we look at your whole financial picture, as well as your investment portfolio. Please see us to discuss the tax implications of this unusual year, and to make decisions that will benefit your year-end tax planning. As always, if you have questions about the markets or your investments, we are here to talk. Please contact us to arrange a meeting by phone, Skype/Zoom or in person with safety protocols in place.
David Wyatt, BA, B.Comm, CFP, Senior Investment Advisor, Manulife Securities Incorporated
Elaine Kelly, MBA CFP, FCSI, Senior Investment Advisor, Manulife Securities Incorporated
Katlin Wyatt, BA, Investment Advisor, Manulife Securities Incorporated
Diana Kancko, Executive Assistant, Manulife Securities Incorporated
Terry Wyatt, Executive Assistant, Manulife Securities Incorporated