It’s not often that Canadians are still thinking of filing taxes while nursing their Victoria Day hangovers, but with COVID-19 forcing the Canadian Revenue Agency to push back this year’s filing deadline to June 1, there is still time for mortgage professionals to provide relevant information to clients who may be curious about what the pandemic means for their taxes.
“This tax season has been different for the company, for our clients and for everybody across the country,” says Micheal Davis, a senior tax expert with H&R Block and the company’s district operations coordinator for the Thunder Bay area.
One reason why this tax season may seem particularly stressful is because of the amount of thought already being dedicated to next year’s, when two of the most prominent COVID-19 reactions, remote work and the federal government’s Canada Emergency Response Benefit, come into play.
For homeowners who have not had the time or mental capacity to do more than spend their CERB funds, Davis says they should start preparing for the tax implications now.
“People have to understand that these are income replacements, so they are fully taxable,” he says. To avoid the bite the increased tax burden might take out of a client’s cash flow next year, Davis encourages his clients to put a portion of their CERB funds away today.
“If you can’t put away for taxes, that’s fine, but just understand that when it comes to tax time next year, you’re going to owe a little bit more,” he says, adding that homeowners can also try saving these CERB offset funds once they go back to work.
Because COVID-19 has turned thousands of Canadian homes into offices, Davis says one potential benefit is an increase in the number of business-related write-offs remote workers will be able to claim next spring.
“It can be financially beneficial for you to be able to write off some of your expenses at home,” he says, “but not everything is a write-off.”
He explains that homeowners working from home must first determine what kind of employee they are: regular, self-employed, or commissioned sales employee. Self-employed and commissioned workers have long been able to claim housing expenses as business expenses, but general employees who have been asked to make the switch are eligible, too.
To be able to claim work expenses, a homeowner will have to get a T-2200 form, a declaration of conditions of employment, signed by her employer. The T-2200 details what an employee needs to complete their tasks, from computers and printers to office space, internet access and the use of a vehicle.
“That form really tells us, and tells the client, these are the areas we’ll need to focus on to figure out what write-offs you have. Once you know that, we can go into the type of expenses they’re allowed to claim,” Davis says.
Utilities, insurance, property taxes and even maintenance costs can be written off, at least in part, when a home becomes a person’s principal place of work. If a home office is calculated to take up 10 percent of a person’s home, for example, that same portion of their utilities can be claimed as an expense. Davis says commissioned sales employees can write off 10 percent of their house insurance and property taxes, as well.
But to take advantage of these write-offs, employees new to the concept of working remotely must be reminded to track their expenses closely and keep their receipts – something they may not be accustomed to doing.
“It’s just a completely new situation,” Davis says. “When you aren’t looking for that in your regular day-to-day, you’re not used to keeping these things. I always tell [clients] it’s better to come with too much. I’d rather go through the receipts that you have and explain why these few didn’t count than tell them they missed out on receipts they no longer have.”
Receipts for work-related expenses should be detailed and organized, even those related to small purchases like pens or printer paper. Davis recommends homeowners make digital copies of their receipts to avoid the hassles involved with trying to submit faded, unintelligible originals to the CRA, for whom details are a must.
“The CRA doesn’t look well on just pulling out a Visa statement and saying, ‘This is where I paid it.’ You need to have the physical receipt that says where you bought it, when you bought it, how much you bought it for, and was there tax on it,” he says.
What about 2020’s taxes?
While most of COVID-19’s impact on taxes won’t be felt until 2021, Davis says one of the main concerns for this year’s extended tax season is ensuring Canadians get their much-needed refunds while also having their physical well-being protected
He says people still worried about the in-person nature of the typical tax return process have new options, including virtual drop-boxes, telephone interviews and e-signatures, that allow them to file while still following social distancing precautions.
“We have a responsibility to do what’s right when many people are counting on us to access these refunds,” he says.