2020 Year-end Tax Planning

NOVEMBER 23, 2020

As 2020 draws to a close we wanted to remind you that some COVID programs are still available to support both you and your business. Included in these changes are welcome revisions to the rent subsidy and home office expense guidelines. 

We also thought it important that annual year-end planning not be forgotten and therefore we have included annual tax deductions reminders. 

2021 also brings with it more reporting disclosure for trusts, as Canada Revenue Agency continues its scrutiny around family trusts. 

COVID business supports

Many of the measures introduced over the last 9 months are still available to businesses. 

Extended to December 31, 2020

  • CEBA loans – The interest-free loan program has been expanded by the government. The loan has increased to a maximum of $60,000, of which $20,000 may be forgivable. The application deadline has been extended to December 31, 2020. Note that the forgivable portion of the loan needs to be recorded as taxable income in the year the loan is received.

  • Canada Emergency Commercial Rent Assistance – If you are a landlord and have applied for CECRA, note that the loans provided by the government will be forgiven by December 31, 2020 assuming that you have complied with all program terms and conditions. The loan forgiveness will be considered taxable income.

Extended to June 2021

  • Canada Emergency Wage Subsidy – The wage subsidy has been extended until June 2021. The base subsidy rate will be maintained at a maximum of 65% until December 19, 2020. The application deadline for all periods through December 19, 2020 is January 31, 2021. Details for 2021 rates have yet to be released. CEWS amounts received need to be reported as income in the qualifying period to which it relates. There will be additional reporting requirements on T4s that will show employees the CEWS that the employer received.

  • Canada Emergency Rent Subsidy – Unlike the CECA, this subsidy is paid directly to the tenant when certain revenue decline thresholds are met. It will provide a subsidy of up to 65% of eligible expenses including rent, mortgage interest, property taxes and property insurance. Mortgage interest for a rental property will not be eligible. This subsidy will be available until June 2021.

COVID individual supports

The government continues to support individuals who are not eligible for EI because they are self employed or unable to work due to illness. Three of the new benefits are available until September 21, 2021.

  • Canada Recovery Benefit (CRB) – If you are self-employed and your income drops by at least 50%, you may be eligible for $500 per week, for up to 26 weeks. This benefit is income-tested, so you are required to repay $0.50 of the benefit for each dollar of annual net income above $38,000 (excluding CRB payments).

  • Canada Recovery Sickness Benefit – If you are unable to work due to illness or the need to self-isolate, you may be eligible for $500 per week for up to two weeks.

  • Canada Recovery Caregiving Benefit – If you are unable to work in order to care for a family member, you may be eligible for $500 per week for up to 26 weeks.

Home office expenses

Many employees have been working from home this year due to the COVID-19 pandemic. Historically employees received a T2200 form from their employer and are able to deduct a portion of a limited number of home expenses including utilities, property taxes and insurance. 

CRA is currently considering options such as a shorter version of the current T2200 form for employees required to work from home. CRA details are expected in January. 

Charitable donations

A good way to minimize your tax bill is by donating public company securities. You don’t pay capital gains tax on the appreciated security donated and you receive a donation receipt for the full fair market value of the shares. Each dollar donated above $200 can save approximately 50% in tax when you are in the top tax bracket. 

RRSP

The RRSP contribution deadline for the 2020 tax year is March 1st, 2021. The contribution limit is 18% of your 2019 earned income, to a maximum of $27,230. It is important not to overcontribute or significant penalties apply. Your RRSP contribution room can be found on your notice of assessment or electronically through my account. For every $10 contributed, up to $5.35 of tax is deferred.

RRIF

The 2020 RRIF minimum withdrawal is reduced by 25% for this year. 

RESP

If you have children, consider making a RESP contribution. You receive a 20% government grant up to $500 every year for every dollar contributed to the plan. To receive the maximum government grant, you will need to contribute $2,500 for the year. 

The investment income earned on your contribution and the grant combined cumulates tax free. Each child is entitled to a lifetime grant maximum of $7,200. There are special considerations for children who are 16 or 17. 

TFSA

The maximum amount you are allowed to contribute to your TFSA account for 2020 is $6,000 as long as you are 18 or over, and a resident in Canada. TFSA room is cumulative so check with CRA on your contribution room carrying forward from prior years. If you need to withdraw funds from your TFSA in 2021, consider withdrawing funds before the end of 2020 instead. Withdrawals from a TFSA can be re-contributed to the TFSA account in the next calendar year so drawing out the money at the end of 2020 means you can recontribute in 2021 instead of having to wait until 2022.

Trusts

Canada Revenue Agency continues to scrutinize family trusts. Please remember to keep a careful record of all decisions made by trustees. As part of CRAs increased audit activity new reporting measures were introduced for 2021. 

  • Filing requirements – Currently, only trusts that have activity are required to file a tax return. For the 2021 year-end all trust, whether there is activity or not – will be required to file a trust tax return.

  • Beneficial ownership schedule – Additional information must be disclosed each year in the trust tax return concerning the various individuals involved in the trust. Such additional information includes names of the settlor, trustee, beneficiary and any person who can exert control or override decisions. This includes names, addresses, date of births, jurisdictions of resident and taxpayer identification numbers. This schedule must be filed with the 2021 tax return due in 2022 giving people time to gather any missing information.

If you have any questions about the COVID measures or year-end planning please contact your team at RMT.