With the pandemic introducing more work-from-home days, filing your 2020 taxes will be a little different this year. There are a few things you will have to take into consideration this year, including CERB payments in new rules introduced by the Canada Revenue Agency.
Learn how to prepare and what to expect when filing your COVID-19 taxes.
What You Need to Know About Home Office Expenses
Working from home means that you can write-off some of your home office expenses. According to CRA rules, you can deduct the expenses for the business use of a workspace in your home as long as you meet one of the following conditions:
- It is your principal place of business
- You use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients
Due to the pandemic, the CRA has expanded its list of eligible expenses. Examples of at-home office expenses include:
- Office supplies
- Phone bills
- Home internet fees
- Maintenance and minor repair costs
- Rent or mortgage payments
- Utility bills (electricity, heat, and water)
Commission employees can also claim:
- Home insurance
- Property taxes
- Lease of office equipment (cell phone, computer, tablet, laptop, fax machine, etc.)
To learn more about what counts as a home office deduction click here.
Flat Rate Method
In December 2020, the CRA announced that there will be a new method for claiming home office expenses. Self-employed workers working from home due to COVID-19 can use Form T777S – Statement of Employment Expenses for Working at home Due to COVID-19 for a new simplified way to claim home office expenses.
If you worked from home for more than 50% of the time due to COVID-19 or for four consecutive weeks, then you are allowed a maximum deduction of $400 for the tax year. This flat rate method can only be used for the 2020 tax year.
The new simplified process means you do not have to calculate the size of your workspace or keep supporting documents.
If your home expenses exceed $400, then you can use the detailed method. This method includes calculating the size of your workspace based on the square footage of your home. Note that you will need supporting documents like receipts and utility bills.
You must meet the following criteria to use the detailed method:
- You worked from home in 2020 due to COVID-19 OR Your employer required you to work from home
- You were required to pay for expenses related to the workspace in your home
- Your workspace is where you mainly (more than 50% of the time) work for a period of at least four consecutive weeks OR You only use your workspace to earn employment income
- Your expenses are used directly in your work
- You have completed and signed a copy of Form T2200S from your employer OR You have a completed and signed Form T2200
What is Form T2200S?
Form T2200S – Declaration of Conditions of Employment for Working at Home Due to COVID-19 is a shorter version of Form T2200 that your employer will use if you worked from home in 2020 due to the COVID-19 pandemic and choose to use the detailed method to calculate your home office expenses.
Your employer fills out this form upon request to certify that you worked from home in 2020 due to the pandemic and were required to pay for some or all of your home office expenses used directly in your work while being under their employment.
What is Form T2200?
Form T2200 – Declaration of Condition of Employment is a form your employer fills out to certify the conditions of employment and that you were required to pay for employment expenses.
CERB Payments, EI, and Other Benefits are Taxable Income
CERB payments provided some financial relief during the pandemic, if you received any payments you should know that it is considered taxable income. This means when you file your 2020 taxes, you can expect to see some tax owing.
Other benefits like the Canada Recovery Benefit, the Canada Recovery Sickness Benefit, and the Canada Recovery Caregiving Benefit are also taxable, but they did have an initial 10% tax rate taken off the amount immediately. This means if you move to the next tax bracket of 15% federal tax, you will owe an additional 5% when you file your taxes.
If you received EI, this is also considered taxable income. You should receive a T4E- Statement of Employment Insurance and Other Benefits that will document your EI earnings and any remittances. Just like the Canada Recovery Benefit, the CRA withheld 10% from your EI earnings.
Temporary Wage Subsidy and Canada Emergency Wage Subsidy
The Temporary Wage Subsidy (TWS) and Canadian Emergency Wage Subsidy (CEWS) are also taxable. It is mandatory that you include the amount of TWS and/or CEWS you received on your Corporation Income Tax Return or Partnership Return when you are calculating your taxable income.
How to Report Employment Income and Retroactive Payments Due to COVID-19
The CRA has introduced additional reporting for the statement of Remuneration Paid (T4 slip) for the 2020 tax year. They have added the following codes for reporting employment income and retroactive payments.
In addition to reporting employment income in Box 14 or Code 71, employers can use these new information codes when recording employment income and retroactive payments in the following periods:
- Code 57: Employment income – March 15 to May 9
- Code 58: Employment income – May 10 to July 4
- Code 59: Employment income – July 5 to August 29
- Code 60: Employment income – August 30 to September 26
The period is the day the employee was paid (pay cheque date). The new requirement means employers should report income and any retroactive payments made during these periods.
Learn how to edit new boxes on the T4 slip here.
QuickBooks is Here to Help You
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