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In her 33 years as a tax professional, Annette Daley-Smith has seen it all when it comes to tax rules and tax changes.
This year is no different, even with the onset of the Canada Emergency Response Benefit (CERB) and issues around taxes not taken off prior to payments issued in the midst of the pandemic.
The closure of the Cape Breton Development Corporation in 1999 is one similar example from recent history that came to mind because stipends issued to miners at that time came with questions regarding the amount of taxes taken.
There was another similar issue involving nurses, though the specifics of it couldn’t be recalled.
The impact of taxes to CERB recipients will vary, she said, and only time will tell the impact on personal finances, if any.
“It would be based on whatever income they would have, what type of other income they have and their tax bracket and deductions,” said Daly-Smith, owner of Daly-Smith Income Tax Services in Glace Bay.
“Usually, if there is any money issued, the tax should be about 30 per cent taken off.”
The federal CERB could mean as much as $14,000 for some people and much less for others depending on how long they drew this particular federal stipend.
In Nova Scotia, there are basic federal and provincial exemptions to consider.
The amount of tax to pay varies by individual and can be influenced by numerous factors.
“There could be a single woman who is separated and she collected the CERB for a while and worked but then she has that child to claim so she might be OK,” said Daly-Smith.
“Somebody that doesn’t have a deduction to offset it might owe. Every individual case is different and that’s what I get a lot of ‘can you tell me why this person got this much money and I only got this and I’m the same?' Everybody is different. It depends on what deductions they have and what they can claim.”
YOU MIGHT PAY
Lisa Gittens, a tax professional for H&R Block said nine million Canadians applied for and received the CERB benefit, representing 30 per cent of Canadian tax filers.
Nova Scotians who received the maximum CERB benefit of $14,000 may have to repay $336 at tax time: $115 to the federal government and $226 to the provincial.
That doesn’t take into account non-refundable credits for CPP or EI that could bring the repay amount closer to $300. Any other income in addition to CERB would likely increase tax payments.
“What we would say to anyone across Canada would be if you are receiving these payments it always good to set aside minimum 20 per cent for tax purposes,” Gittens said. “When we say the minimum of 20 per cent that’s because we know across provinces and territories 15 per cent is the federal (tax) rate, then we have the provincial rate and we are taking into account there still may be residual credits and deductions there.”
Canada Emergency Response Benefit at tax time
• If you received emergency or recovery benefits from the CRA in 2020, you will receive a T4A slip. You must report these amounts on your 2020 income tax and benefits return.
• If you received the CERB or CESB, no tax was withheld when payments were issued. You may owe this tax when filing your 2020 tax return.
• If a person worked to earn $5,000 or more during the year prior to the pandemic, and subsequently lost their job or were without work during the pandemic, they likely qualified for the CERB.
• For many, CERB represented up to $14,000 across the 28 weeks the benefit was available.
• As of December, there were nine million applied for and received these CERB benefits.
• Individuals who received CERB payment were issued TFA statements from Revenue Canadian Jan. 12.
• Some individuals also applied for the CERB through Service Canada and those individuals will get a TFE slip which may show CERB payments and EI payments.
• Canada Recovery Benefit, the Canada Recovery Sickness Benefit and the Canada Recovery Caregiving Benefit.
• For these three 10 per cent was withheld by Revenue Canada.
• A T4A slip that will show the benefit you received and the fact that some tax was withheld.
WORK FROM HOME CREDITS
• $400 if you worked from home for four consecutive weeks in 2020 and worked at least 50 per cent during those weeks.
• Part of your cell phone plan.
• Portion of your internet fees
• 10 per cent of rent as well as utilities
• Minor repairs to home workspaces
• If you are working on commission, claim the least cost of your computer or the least cost of a fax machine.
Canada Emergency Student Benefits.
• Paid to students enrolled in school but maybe not able to find that part-time job.
• 10 per cent tax was deducted but it is still taxable income.
• They can claim their tuition credits.
*Source Revenue Canada & H&R Block
Gittens said ‘a perfect return’ for Revenue Canada would mean a balance of zero but a perfect return for a tax filer is one where you get a refund.
“It’s not just a plug for H&R Block but I strongly say if anyone has concerns, contact your tax professional or pick up the phone and contact Revenue Canada,” she said. “It doesn’t hurt to ask questions. A penny saved is a penny earned.”
If you want to get your tax account to zero or perhaps get a tax return, then now is the time to consider claiming standard deductions like an RRSP because you pay no tax on the amount you put into that particular retirement fund.
Make sure you include medical expenses on our return and, if you are married, the benefits are greater for the spouse with the lower net income.
Charitable donations, a non-refundable credit, is hugely beneficial for the spouse with the higher net income to claim, said Gittens.
WORKING FROM HOME
During the pandemic many have moved their work to homes and the federal government has outlined a number of tax breaks for those in that category.
“If you are working from home, there is a reduction available to you to help reduce your taxes, whether the simplified flat deduction of $400 or the detailed method which does require you to keep your receipts.”
You’ll need a T77S form for that. A more detailed method to claim more than $400 uses the same form.
Gittens said you’ll need to know the total square footage in your home and the percentage of your workspace for another tax saving expense.
“Let’s say you are working from your dining room table, which may be 10 per cent of your home space, then you would be able to claim basic expenses like your supplies — pens, pencils, paper, stamps, cleaning supplies.”
A portion of your cell phone plan that applies to business, a percentage of your monthly internet bill, 10 per cent of rent, and utility bills are also tax credits for those who are working from home because of the COVID-19 pandemic.
You can also claim minor repairs to your workspace even the installation of new lightbulbs in that area.
If you are working on commission, claim the least cost of your computer or the least cost of a fax machine. Those expenses could not exceed the amount of commission earned, though.
Both Gittens and Daley-Smith said many are eligible for a variety of tax exemptions and may not know it, so it’s important to speak to a tax professional this year more than ever. Changing rules and the new CERB payments add to that importance.
Daley-Smith does suspect some people might have to pay back a little more tax than they have had to pay back in previous years but doesn’t expect that to be a shock to anyone.
The fact taxes were not claimed on the CERB payments has been well document. It’ll be a wait and see as to how much they have to pay back.
She expects inquiries to pick up by the end of January when T4 slips are issued.
Greg McNeil is a business reporter at the Cape Breton Post.