Tax bracket changes
The Canada Revenue Agency (CRA) has held the income tax rate steady this year, but it has altered the income tax brackets. The minimum income tax bracket has risen to $49,020 this year, from $48,535 last year.
What this means is that if your income stayed the same this year either because of the pandemic or otherwise, you’ll get a lower tax bill. But if you did get a small raise, it shouldn’t cause a spike in how much you owe.
Tax debt can affect your credit score. No matter the size of your refund or your amount owing, it’s always important to keep an eye on your credit score.
Basic personal amount change
Another change made by the CRA this year is an update to the Basic Personal Amount (BPA). It’s a non-refundable tax credit available to anyone filing income tax.
The BPA reduces the amount of income you’re required to pay tax on. It’s been revised to $13,229 for the 2020 tax year, and it will rise every year with inflation.
Keep in mind that the more you earn, the less of the BPA you can claim. For example, those in the top tax bracket earning more than $214,368, won’t receive a BPA tax break at all.
Those tax savings can add up, and will do so even faster if you put that extra cash from your refund into a savings account with a high interest rate can help your money grow.
Simplified credit for working from home
One of the big changes brought about by the pandemic was the dramatic increase in the number of Canadians working from home.
Appropriately, one of the big changes made by the CRA this year was around the rules for the deduction for home office expenses.
If you worked from home more than half the time for at least four-straight weeks in 2020, you qualify for this deduction.
Even better, the rules have been relaxed significantly this year when it comes to claiming this credit, which is great news if 2020 marked your first foray into remote work.
The new, simplified “flat rate” calculation allows you to claim a deduction of $2 a day for every day in 2020 that you worked from home, up to a maximum of $400.
The more detailed method involves calculating what percentage of your household costs are from your home office space. Things like utilities, rent and internet service can all qualify. To use this method, you must also have receipts.
From the time it was first announced, the Canada Emergency Relief Benefit was first announced, the CRA made it clear that it was considered taxable income.
A year into the pandemic and with tax season upon us, it’s worth noting that if you received CERB money from the government, it will affect your taxable income. When you receive a paycheque, the appropriate taxes are taken before it hits your bank account. With CERB and other benefits, no taxes were taken when the payments were issued (unlike with standard EI benefits, which have taxes deducted before you receive them).
The CRA announced one year of interest relief to those owing tax on pandemic benefits. You still file your return by April 30 of this year to avoid late-filing penalties. So you can file your taxes on time as usual, but you have a full year to pay any tax debt without accruing interest.
This interest relief applies to you if you made less than $75,000 in income and received any of the following benefits: CERB, the Canada emergency student benefit (CESB); the Canada recovery benefit (CRB); the Canada recovery caregiving benefit (CRCB); the Canada recovery sickness benefit (CRSB); Employment Insurance (EI) benefits; or similar provincial emergency benefits.
If 2020 hit your finances hard and you relied more heavily on credit cards and other forms of credit to help get you through, you might also consider consolidating your debt with a loan at a lower interest rate.
Digital news tax credit
We depend on news publications to inform us about about COVID-19 and how it affects our daily lives. If you subscribed to a qualified Canadian journalism organization, you can claim, up to $500 on your taxes.
Qualified organizations include websites, newspapers, magazines and even podcasts. If it doesn’t have a broadcasting license and mainly offers original news content, you can deduct the expense from your taxes.
Unclaimed CRA cheques
There’s a chance you might have some money from the CRA just sitting around. As of 2020, the CRA was sitting on some $1 billion in uncashed tax refund cheques and benefits.
In many cases the cheques, which do not expire, may have been lost or the recipients moved and forgot to notify the CRA so they were sent to the wrong address.
If you want to check to see if you’ve got money sitting around waiting to be claimed, you can visit your CRA account and click on the link that says “uncashed cheques.” If you’re looking for something to do with that unexpected cash, consider putting it to work in the stock market with a beginner-friendly investing service.
Remember that no matter what method you choose to file your taxes, whether you’re using software to file your taxes online or going to a professional, remember to file them on time to avoid penalties.