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Be Prepared and Avoid the Tax Crunch in 2021

It is almost that time of year again to talk about tax planning and income tax tips. This year is a little bit different given everything that has been going on with covid-19. Below are a a few considerations to help you be prepared, not crunched, this tax season.

Taxable Emergency Benefits
~ CERB alone could be up to $14,000 taxable income depending on eligibility, which was not subject to tax at source. This could mean that you owe a lot of money in tax. If you have no other income, you may not be subject to taxation, however, if you were working or have other benefits, 50% or more could be repayable depending on your tax bracket in Alberta.

Registered Retirement Savings Plan (RRSP)
~ You have until March 1, 2021 to contribute to your RRSP for the year 2020. Contributing to an RRSP could offset tax owing from other income and offers tax-sheltered growth for retirement needs.

Tax-Free Savings Account (TFSA)
~ Your money grows tax-free inside a Tax-Free Savings Account (TFSA).
~ Effective January 1, 2021, the TFSA annual contribution limit increased $6,000 for a total allowed contribution room of $75,500.
~ What sets a TFSA apart from the Registered Retirement Savings Plan (RRSP) is that you don’t have to pay income tax when you withdraw.

Canada Training Benefit
~ The federal government introduced this benefit to help Canadians with the cost of training fees due to changes in technology and provide income support during training.
~ As a worker, you’ll be eligible to receive up to $250 annually as a tax credit, which can be used for eligible training purposes, up to a lifetime limit of $5,000.
~ The credit could be used to refund up to half the costs of taking a course or enrolling in a training program. An individual’s credit balance would be included in the information the Canada Revenue Agency sends them each year.
~ The amount of the Canada training credit will be the lesser of: half of the eligible tuition and fees paid in respect of the year, and the individual’s Canada training credit limit for the taxation year.
~ To be eligible for this benefit, you must be between the ages of 26 and 65, have filed an income tax return for the year, be a resident of Canada, and have paid tuition or fees to an eligible educational institution.

Home Buyers’ Plan (HBP)
~ The HBP assists first-time homebuyers by allowing those buying a home for the first time to withdraw money from their RRSP without paying any tax. Any funds borrowed must be paid back over 15 years, beginning in the second year after your initial withdrawal was made.
~ Those eligible to participate in the program can withdraw up to $35,000 from their RRSP or $70,000 for a couple.

Tax Breaks for Seniors (OAS/CPP)
~ Effective July 2020, the Old Age Security (OAS) was increased by 10% for seniors older than 75 years of age earning less than $77,580.
~ Important increases to the survivor benefit of the Canada Pension Plan (CPP). The maximum pensionable earnings have increased and those not otherwise receiving CPP can now receive 37.5% or 60% of their deceased spouse’s pension, depending on age.

joanne-david-financial-investments-tax-services-point-right.pngDo you need tax preparation or related tax or investment services? Contact Joanne David to book a phone call meeting. You can also read more information about our Canadian Tax Preparation & Filing Services.

Tax Breaks for Parents
~ Beginning in 2020, all maternity or parental benefits received through Employment Insurance (EI) will be tax-exempt at source.
~ There is now a 15-week leave for adoptive parents, bringing the time equivalent to those on maternity leave.
~ The Canada Child Benefit is increased 15% for new parents of children under one year old. At July 2020, the base benefit was $7,750.
~ The Child Disability Benefit has almost doubled for for parents of disabled children.

Rule Changes for Rental Property Conversions
~ If converting your rental property to residential, an automatic deemed disposition no longer occurs, allowing for tax deferral. In addition, you can designate the property as your principle residence for up to four additional years.

Registered Disability Savings Plan (RDSP)
~ Effective January 1, 2021, the time limit for a RDSP to stay open has been removed as well as the need for a medical certificate stating that the beneficiary is likely to become eligible again in the future.

Simplified Home Office Tax Deduction
~ Due to covid-19, many people have been working at home from their personal desks and kitchen tables. The Canada Revenue Agency (CRA) has introduced a new temporary flat rate method to simplify claiming the deduction for home office expenses for the 2020 tax year.
~ This temporary flat rate measure removes the requirement for a detailed form signed by your employer.
~ You are eligible to use this new method if you worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. You can claim $2 for each day you worked from home during that period plus any additional days you worked at home in 2020 due to the COVID-19 pandemic. The maximum you can claim using the new temporary flat rate method is $400 (200 working days) per individual.

2021 Climate Action Incentive payment
~ People will receive their Climate Action Incentive when they file their 2020 personal income tax returns. A family of four will receive $981 in Alberta. Families in rural and small communities receive an extra 10 per cent. Single adults in Alberta will receive $490.

Thank you for reading!

My associates and I wish you a prosperous 2021 and effective tax season!

If you are looking for tax preparation or related assistance, please contact Joanne David to book a phone call meeting.

You can read more information about Canadian Tax Preparation & Filing Services and Other Services.

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Joanne David BA CFP FCSI offers Tax Preparation Services and is an independent Financial Planner operating in the Terwillegar-Riverbend area of Edmonton. Joanne can be reached direct at 780.718.7117 or contact us through this web site.

For more details on other Canadian tax tips, see: CIBC Tips

joanne-david-financial-investments-tax-services-point-right.pngDo you need tax preparation or related tax or investment services? Contact Joanne David to book a phone call meeting. You can also read more information about our Canadian Tax Preparation & Filing Services.