In this post, we provide some helpful tips to ensure that you are maximizing your return and preparing adequately.
For many people, there may be differences in tax situations that are unique this year. In 2020, about 1/4 of Albertans received Canada Emergency Response Benefit (CERB) payments.
CERB Payments are Taxable
Many people are used to having income taxes deducted at source, so it may come as a surprise that some individuals may owe tax for the 2020 year. The amount of tax owing will be calculated at each individual's marginal tax rate.
Canada Revenue Agency (CRA) is now withholding 10% tax at source from amounts distributed for the three new benefits that were designed to replace CERB: Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB, and the Canada Recovery Caregiving Benefit (CRCB). Again, depending on a person's overall income during the year, the 10% at-source deduction may not be all the tax that is required.
CRA is introducing new employment income codes for the T4 slip that will report employment income based on COVID-19 payment periods. This will allow CRA to validate what payments were received.
RRSP Contributions Through an Employer-Sponsored Plan
If you are used to making contributions to your group savings plan via payroll deductions, a reduced income may mean that contributions were lower and a smaller tax deduction may be available on 2020 tax returns.
Deductions May Look Different for 2020
An individual's RRSP contribution room may be lowered for 2021 if they made less income in 2020.
Deductions that you may have had previously for childcare, business travel, or medical-related procedures may be lower than in previous years.
Tax Strategies to Consider
Check your Notice of Assessment to see if you have carry-forward amounts for things like tuition, moving expenses, donations or student loan interest. These carry-forward amounts can be used to reduce taxes for 2020.
RRSP contributions could be used to create a deduction if they are made prior to the deadline.
Talk to your accountant about realizing a loss in a taxable portfolio or applying capital losses that you may have been able to carry forward in a past year.
Charitable donations provide a tax credit
Further Reading
The content for this article was shared by Manulife Investment Management. They have published a document called 2020 Tax Planning Tips that you can download free.