The 2021 Guide to Filing Taxes

This year's tax season is a unique one. There are many changes and new factors that may need to be considered from recovery benefits to working from home considerations which will affect taxpayers financially this income tax return season. Here’s everything you need to consider when it comes to filing your income tax returns for the 2020 year.

Going digital this tax season

For logistical reasons, filing a paper tax return is not recommended. Approximately 90 percent of tax returns are filed electronically to the Canadian Revenue Agency (CRA). The CRA encourages you to sign up for direct deposit and to file online to get refunds faster and avoid any delays. For more information about filing, deadlines, and CRA services to help you through tax-filing season see here.

COVID-19 emergency benefits

Millions of Canadians received COVID-related government benefits in 2020 totaling billions of dollars in payments. If you are one of those who benefited from a payment then you need to disclose this on your income tax return (on Line 13000 other income) as they are considered taxable income. 

These include: 

• Canada Emergency Response Benefit (CERB)
• Canada Emergency Student Benefit (CESB)
• Canada Recovery Benefit (CRB)
• Canada Recovery Sickness Benefit (CRSB)
• Canada Recovery Caregiving Benefit (CRCB)

If you have received any of these payments, you will receive a T4A (which is for any benefits issued by the CRA) and/or a T4E (which covers any benefits issued through Service Canada) tax slip(s) in the mail with all the necessary information needed to complete your tax returns. These slips can also be seen online in the My Account section of the CRA website.

Working from home

When the onset of coronavirus hit, it required a lot of the country to begin working (and still to this day) from home. This change in working conditions created a financial burden for many due to the purchasing of home office equipment like a desk, laptop, monitor etc. If you were not reimbursed for these by your employer then you can make a claim for these items on your tax return.

There are two methods for claiming 2020 home office expenses: 

• Temporary flat-rate method
• Detailed method

Flat-rate method - This refers to you having worked more than 50 per cent of the time from home for at least four consecutive weeks plus any additional days you worked at home in 2020 because of the coronavirus. With Form T777S  you can claim $2 for each day you worked from home for up to a maximum of $400 i.e. 200 working days. With the method of reimbursement you do not have to keep any supporting documents to track any expenses.

Detailed method - You will claim under this method to claim the actual amounts you paid, supported by documents. Again like the flat rate you must have worked from home more than 50 per cent of the time, for a period of at least four consecutive weeks last year. You must have a completed and a signed Form T2200(S) from your employer. With the detailed method option you can deduct a variety expenses/costs like home internet, electricity, heating, maintenance and even a portion of rent costs.

The CRA has an online calculator that will help calculate your 2020 home office expense deduction.

When to seek professional help 

One of the most stressful times for many of us is the annual personal income tax season (March/April). Some people love filing their tax returns themselves but for some it is the most dreaded time of the year. If you are not sure which is best then let us help you make the decision that is best for you. 

There are a number of questions to pose to yourself to determine if hiring a third party is best for your taxes:

• Do you have the patience and time to do it yourself?
• Do you have a mainstream tax return situations - without investments, charitable contributions, dependents, retirement accounts, significant assets
• Do you own a business and are comfortable working through business related tax forms?
• Have you had a major life change e.g mortgage, a child, or marriage?

This flowchart can help you make a quick decision on whether or not you should hire a professional or do it yourself?

If the answer is you want to do it yourself then a free tax return software may be a great option to use. (see below)

Which Tax Software Should You Use?

Employees with uncomplicated tax situations can simply file their taxes from home, using one of the many available DIY tax softwares. Many of these are free or very cheap as well as safe and secure. Just make sure that the software is CRA certified and secure. All of the listed below have these components. Here are some of the most popular option:

Turbo Tax 

TurboTax is one of the most respected, popular and complete DIY tax software programs on the market. They offer free, standard, and premium versions of their software, giving users the ability to customize the software based on their needs. They have great support features including a free online community forum and phone support with one of their tax specialists. Other features include double checking for errors, NETFILE-certified, and pension splitter. 

Wealthsimple Tax

Wealthsimple is a Canadian online tax/investment management service which was founded in 2014 and is based in Toronto. They offer a pay what you want type model. This software system is CRA certified and guarantees both a maximum refund and 100% accuracy. If your tax return is audited by the CRA, Wealthsimple will help you understand why it happened and then give you step by step guidance on what to do next. They use state-of-the-art encryption and a two-factor authentication for added security.

UFile

This software program is only free to select groups—college students, newcomers to Canada, people filing their first tax return, and low income taxpayers. There is an online and Windows version. The interface keeps a copy of your tax returns for the last 9 years which allows you to easily access your information whenever necessary. As well as being CRA certified, Ufile offers free support, auto fill, pension income splitting, refile and express NOA features. The paid version starts at $19.95.

Conclusion

We advise you to use the free supports online or to reach out to a third party if needed. On top of that it is always good to keep an eye out for any upcoming tax changes in the news or government CRA website which may allow you to save some well earned cash.