Canada Emergency Wage Subsidy (CEWS)

crop payroll clerk counting money while sitting at table

What the changes are:

Calculation details for claim periods 11 to 13 are now available.

January 2021 changes:

Changes to CEWS as of January 6, 2021:

  • details for claim periods 11 to 13 (December 20, 2020, to March 13, 2021):
    • the maximum top-up subsidy rate is 35%
    • the maximum subsidy amount for employees on leave with pay is $595
    • the base revenue drop comparison months for period 11 will be the same as period 10

November 2020 changes:

Changes to CEWS as of November 19, 2020 (Bill C-9):

  • the subsidy is extended to June 2021
  • the maximum subsidy rate for periods 8 to 10 will remain at 65% (40% base rate + 25% top-up)
  • beginning in period 8, the top-up rate and base rate are is now calculated using the same one-month revenue drop
    • for periods 8 to 10, use the new top-up calculation or the previous 3-month average drop, whichever works in your favour
  • the deadline to apply is January 31, 2021, or 180 days after the end of the claim period, whichever comes later
  • starting in period 9, the calculation for employees on leave with pay now aligns better with EI benefits
  • you can now calculate pre-crisis pay (baseline remuneration) for employees who were on certain kinds of leave, retroactive to period 5
  • the Canada Emergency Rent Subsidy (CERS) has been introduced for businesses, non-profits, and charities

July 2020 changes:

Changes to CEWS as of claim period 5 (Bill C-20):

  • the subsidy rate varies, depending on how much your revenue dropped
  • if your revenue drop was less than 30% you can still qualify, and keep getting the subsidy as employees return to work and your revenue recovers
    • for periods 5 and 6, if your revenue dropped at least 30%, your subsidy rate will be at least 75%, up to a maximum of $847/week per eligible employee
  • employers who were hardest hit can qualify for a higher amount
  • employees who were unpaid for 14 or more days can now be included in your calculation
  • use the current period’s revenue drop or the previous period’s, whichever works in your favour

Periods 1 to 4:

For claim periods 1 to 4 (Bill C-14):

  • you must meet a minimum of 15% (period 1) or 30% (periods 2 to 4) revenue drop to qualify for the subsidy
  • if you qualify for a period, you automatically qualify for the following period
  • the subsidy rate is 75% of eligible employees’ remuneration, up to a maximum of $847/week per eligible employee
  • employees who were unpaid for 14 or more consecutive days in the period can’t be included in your calculation

More Direct Section Links:

Related guides

Reporting on outcomes

2020 Personal tax prep guide

The 2021 tax filing season is on the horizon and kicks off on February 22, 2021.

The tax-filing deadline for most Canadians (for the 2020 tax year) is on April 30, 2021. For those who are self-employed, or who have a spouse/partner who is self-employed, the deadline extends until June 15, 2021.

The year 2020 was a tumultuous year given the coronavirus pandemic that ravaged the world. This resulted in economic challenges that pushed the Canada Revenue Agency (CRA) to move the tax filing deadline for individuals from April 30th to June 1st. Canadians were also given a penalty-free extension until September 30, 2020, to pay taxes owed.

It is unclear if similar extensions will be granted during the 2021 tax season. As far as we know right now, you should plan to file your return and pay outstanding taxes by April 30, 2021.

Filing your taxes on time is not just about getting your tax refunds on time. A late tax filing can result in monetary penalties and can also delay or affect your government benefits negatively. For example, you could miss out on the Canada Child Benefit and GST/HST Credit.


Click below to download our complete list of paperwork to bring in for your 2020 taxes!


WHAT ARE THE PENALTIES FOR A LATE TAX-FILING IN 2021?

The government wants every penny it is owed and wants it in good time. As such, there are penalties for filing a late tax return if you have an unpaid tax balance.

If you are getting a refund or your tax balance is zero, there are no penalties for sending in your return after the deadline date.

The penalties for filing your income tax and benefit return late when you owe the Canada Revenue Agency (CRA) are as follows:

LATE TAX-FILING PENALTY

An immediate penalty of 5% on your tax balance owing plus 1% of your balance owing per month for up to 12 months is levied by the CRA.

For example, if you owe the taxman $5,000 in taxes and send in your tax return 12 months late, your tax bill increases to:

$5,000 x 5% = $250, plus

$5,000 x 1% x 12 months = $600

Late-filing penalty = $850, increasing your overall tax bill to $5,850.

This amount does not include the additional interest penalty.

If you were late in filing your taxes in previous years as well, the CRA can increase your “late-filing” penalty to 10% of your tax balance, plus 2% per month up to a maximum of 20 months.

Late Tax-Filing Interest

In addition to the “late-filing” penalty, the government will also charge interest on the amount of taxes you owe, including the penalties.

There are some instances where the CRA may be able to waive penalties/interest on taxes owing if you can show that circumstances beyond your control prevented you from meeting your tax obligations, such as financial hardship, natural or man-made disasters, serious illness or accident, postal strike, etc.

Use Form RC4288 to request the penalty waiver.

Tax-Tip: Even if you are unable to pay CRA what you owe them in taxes, it still makes sense to file your taxes before the April 30th deadline. Doing this means that you avoid the late-filing penalty and will only be on the hook for interest payments

Rates and Limits:

As expected, several tax rates and limits are changing in 2021.

  • Federal and provincial income tax brackets are increasing to keep up with inflation.
  • Employment Insurance (EI) Premiums are staying steady at 1.58% in 2020. However, maximum insurable earnings will increase from $54,200 to $56,300.
  • Maximum pensionable earnings, the amount used by the government to calculate Canada’s Pension Plan contributions for the year, is increasing to $61,600 in 2021, up from $58,700 in 2020. Similarly, the employee and employer contribution rates for 2021 will be increasing by 5.45%, up from 5.25% in 2020.
  • As was the case last year, the Canada Child Benefit will continue to be indexed to inflation. In 2021, the maximum a parent can receive is $6,765 for children under age 6 (up from $6,639 in 2020) and $5,708 for children ages 6 to 17 (up from $5,602 in 2020).
Tax-Free Savings Account Contribution Limit Increased

Changes are being made to your TFSA in 2020

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In 2021, the annual contribution limit on the Tax-Free Savings Account (TFSA) is once again being upped. In 2019 the TFSA annual contribution limit was upped to $6,000 for the first time. In 2020 it’s more of the same as the TFSA limit is $6,000 once again. If you’ve never contributed to the TFSA and you’ve been eligible to contribute since 2009, you’d have $75,500 in total contribution room.

As the name implies, your money grows tax-free in the TFSA. What sets it apart from the Registered Retirement Savings Plan (RRSP) is that you don’t have to pay income tax when you cash out your money.


Canada Training Benefit

The federal government introduced the Canada Training Benefit to help with disruption in the labor force due to changes in technology. This refundable tax credit is designed to lower the barrier to professional development and to provide financial support to help pay for half of the tuition and training fees. As a worker, you’ll be eligible to receive up to $250 annually as a tax credit. This amount goes into a notional account, which the worker can use for eligible purposes.

To be eligible to accumulate $250 in a year, you must meet the following criteria:

  • File a tax return for that year
  • Be at least 26 years old and no older than 65 years old at the end of the year
  • Be a Canadian resident during the year
  • Have eligible earnings of minimum $10,000 and maximum $150,000 in the year (this includes employment, self-employment, and maternity and parental benefits)

To help make it easier to keep track of your notional account balance, it will be communicated each year on the Notice of Assessment you receive from the Canada Revenue Agency (CRA) after you file your income taxes. In any given year you can claim the lesser of the balance in your notional account and half of eligible tuition and fees paid in the year.


Home Buyers’ Plan

The home buyers’ plan (HBP) assists first-time homebuyers in attaining a down payment sooner. It allows those buying a home for the first time to withdraw money from their RRSP without paying any tax. Any money borrowed under the HBP must be paid back over 15 years, beginning in the second year after your initial withdrawal was made. Only funds that have been in your RRSP for at least 90 days can be withdrawn as part of the HBP.

After being frozen for several years, the federal government has increased the withdrawal limit on the HBP as part of the 2019 federal budget. Effective March 19, 2019, those eligible to participate in the program can withdraw up to $35,000 from their RRSP, up from $25,000 in previous years. This means that a couple buying a home together could withdraw a combined $70,000 from their RRSPs to buy their first property.

There are special rules in place if you’re acquiring a home for an individual who’s eligible for the disability tax credit (DTC). The rules are being updated so that the same $35,000 withdrawal limit is provided to those buying a home that’s more accessible and better suited for people with disabilities.

The budget also made it easier for those who suffer a breakdown of a marriage or common-law partnership. Under the new rules, individuals who suffer a marriage or common-law relationship breakdown who have been living apart from their spouse or common-law partner for a minimum of 90 days due to the breakdown in the relationship, may be eligible to participate in the HBP, even if the other eligibility criteria aren’t met. An individual in this situation could make a withdrawal from the HBP provided they are living separately from their spouse or partner at the time of withdrawal and have been living on their own within the year of the withdrawal or at any point in any in the four prior years. However, someone would only be eligible to participate under this exception provided they aren’t living in a home occupied by their new spouse or common-law partner.

Someone who decides to participate in the HBP under these circumstances will have two years after the HBP withdrawal takes place to sell their previous principal residence. However, for someone buying out the share of their spouse or common-law partner, this requirement is waived.


Basic Personal Amount

The basic personal amount is a non-refundable tax credit that all taxpayers are eligible to claim. The basic personal amount is the amount you can earn without paying any income tax. The amount, currently at $13,229 in 2020, is set to rise annually with inflation. However, the Liberals have promised to increase it more quickly. The basic personal amount will increase by 15% over the next four years, reaching $15,000 in 2023.

However, not everyone will be entitled to this tax break. The wealthiest Canadians, those earning more than $150,473 in the second-highest tax bracket, will have the basic personal amount reduced, with those earning more than $214,368 not receiving any tax break at all for the basic personal amount.

Employee Stock Options

Employee Stock Options Tax Changes for 2020

ImageSource: Shutterstock

In the 2019 Federal Budget, the Liberals indicated their intention of changing how employee stock options are taxed. Currently, employees can claim a deduction of 50% of employee stock option benefits when the option is exercised, resulting in similar tax treatment to capital gains.

The new rules put an annual limit of $200,000 on employee stock options for any employees who are part of a “large, long-established” business. The limit is based on the fair market value of the employee stock options when the shares are granted.

This change to the taxation of employee stock options brings Canada’s tax treatment more in line with the U.S. (Note: this tax change wouldn’t affect employees in start-ups or rapidly growing Canadian firms, who wouldn’t be subject to the limit.)


Tax Breaks for Seniors

The Liberals increased Old Age Security (OAS) by 10% for seniors older than 75 years of age earning less than $77,580. The change meant an increase of $729 annually in OAS starting in July 2020.

The Liberals also provided an enhancement to the survivor benefit of the Canada Pension Plan (CPP). The maximum pensionable earnings have increased to $58,700, up from $57,400. In addition, a surviving spouse, over the age of 65 and not otherwise receiving CPP benefits, is able to get 60% of their deceased spouse’s pension. This means an increase of $2,080 annually. Survivors between 60-64 years of age are eligible for 37.5%.


Tax Breaks for Parents

Being a parent isn’t cheap these days. With a lack of affordable childcare, the federal government is looking to give new parents a tax break.

The federal government has made a pledge that any maternity or parental benefits received through EI will be tax-exempt at source, beginning in 2020. This change means an extra $1,800 a year for someone who receives EI benefits and earns $45,000 a year.

The Liberals are also promising a 15-week leave for adoptive parents receiving EI benefits, the same length as maternity leave.

The popular Canada Child Benefit is also slated for an increase. The tax-free benefit will increase for new parents with kids under one year old. The 15% boost will mean an increase of as much as $1,000 for some parents. In July 2020, the base benefit is expected to be $7,750.

For parents of disabled children, the Child Disability Benefit almost doubled. The benefit is for families looking after a child under the age of 18 with disabilities who currently receive the DTC. The increase could mean more than $2,800 extra in the pockets of parents.

For parents of disabled children, the Child Disability Benefit is expected to double. The benefit is for families looking after a child under the age of 18 with disabilities who currently receive the DTC. The increase could mean more than $2,800 extra in the pockets of parents.


Rule Changes for Multi-Unit Residential Properties

Under normal circumstances when you convert a property from a rental property to residential property (or the other way around); you’re considered to have disposed of and reacquired the property. However, for changes in use after March 18, 2019, this deemed disposition doesn’t apply. This allows you to defer paying capital gains taxes on the property until a future disposition.

In addition, when the property is being converted to or from a principal residence, you can designate the property as your principal residence for up to four more years before or after the period for which you can otherwise claim the tax exemption for a principal residence.


Advanced Life Deferred Annuities

The 2019 budget brought in changes so that Advanced Life Deferred Annuities (ALDA) are considered qualifying annuities that can be purchased under RRSP, Registered Retirement Income Funds (RRIF), Deferred Profit Sharing Plans (DPSP), Pooled Registered Pension Plans (PRPP), and defined contribution registered pension plans. (An ALDA is a life annuity that may start as late as the end of the year in which you reach age 85.)


Registered Disability Savings Plan

The 2019 federal budget is getting rid of the time limit that a Registered Disability Savings Plan (RDSP) may stay open after the beneficiary is no longer eligible for the disability savings plan. It’s also getting rid of the need for a medical certificate stating that the beneficiary is likely to become eligible again in the future for the DTC in order for the plan to stay open. These changes will come into effect on January 1, 2021.


Kinship Care Providers

Kinship care programs are an alternative to foster care offered by provinces and territories. The Income Tax Act (ITA) is being amended to say that you may qualify for the Canada workers benefit tax credit, regardless of whether you get financial help from a kinship care program. Changes will also be brought in to clarify that payments of financial assistance from a kinship care program are not taxable nor to be included in income when determining tax benefits and credits.


Claiming Cannabis as a Medical Expense

To reflect the fact that cannabis is legal in Canada, the federal government will be amending the ITA. You can claim a medical expense tax deduction for any cannabis products that you buy as a patient after October 16, 2018.


More Articles:


T2200’s Form: COVID-19 Work From Home Tax Deductions

Millions of Canadians made the shift to working from home in 2020 due to the COVID-19 pandemic. These workers may now qualify for new home office tax deductions announced by CRA for the 2020 tax year. 

In November, Statistics Canada reported that 2.5 million Canadians who did not work from home pre-pandemic are still working from home. 

To help cover home expenses, the CRA has provided 2 methods for employees working from home to claim their deductions. The first is a simple deduction of up to $400, no receipts or paperwork required. The second requires employers to fill out Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19.

Unsure of what route to take to best support your employees? Here are both options broken down, just in time for the upcoming tax season.  

Option 1: Flat Rate Deduction of $400

The simplest option for employers and employees is claiming through the Temporary Flat Rate Method, where eligible employees can claim up to $400 in deductions without any receipts or employer sign-offs. 

In this case, employers do not need to fill in a Form T2200S (T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19) and employees do not need to tally expenses, keep receipts, or calculate the square footage of their home workspace. 

Eligibility

Employees must meet all of the following eligibility requirements: 

  • You worked from home because of the pandemic in 2020
  • You worked more than 50% of time from home for a period of at least four consecutive weeks in 2020
  • You are only claiming home office expenses and no other work expenses
  • You have not been reimbursed for all home office expenses by your employer

Through this method, eligible employees can claim $2 per day they worked from home, up to a maximum of $400. Days worked from home include this period plus all days (i.e. if you went back to your workplace for a short amount of time but then worked from home again – all work from home days are included). 

If your employees have been working from home since the start of the pandemic, they should qualify for the full amount. Also, if a stipend was provided by the company to employees to cover work office items such as a desk or chair, employees are still eligible for this deduction. 

Making the Claim & How to Calculate

There is a calculator available to easily determine the deduction. Employees would use this calculator and include the resulting amount on their tax return and Form T777S Statement of Employment Expenses for Working at Home Due to COVID-19.  

flat-rate method calculator

Option 2: Detailed Method using Form T2200S

With the Form T2200S method, employees may be able to claim more than the $400 available in the simpler Temporary Flat Rate Method. The percentage of your workspace relative to your home, as well as the percentage of time the space is used for work, is taken into consideration for the calculation. 

Employers are required to complete and sign off on Form T2200S, Declaration of Conditions of Employment for Working at Home Due to COVID-19. This is an amendment of Form T2200, created specifically for this use. Form T2200s is shorter and easier to fill out. The form should be completed and signed alongside T4 slips for payroll year-end. 

Employees are required to keep their T2200S (or T2200), as well as any receipts, supporting documents, and records for 6 years.

Eligibility

To qualify, employees must meet the following eligibility criteria:

  • You worked from home in 2020 either because it was required or by choice, due to the COVID-19 pandemic 
  • You incurred expenses related to the workspace in your home 
  • Your workspace is where you mainly work (more than 50% of the time for at least 4 consecutive weeks) or you only use your workspace to earn employment income, also using it regularly for meetings
  • Your expenses are used directly in your work 
  • You have a completed and signed copy of either the Form T2200S or Form T2200 from your employer

Eligible Claims

Before starting the claim process, the employee will need to gather documentation and receipts for their home office expenses. While going through the calculator, CRA has listed the types of expenses that can and cannot be claimed for the tax deduction. Here are some examples. 

Office supplies 

Included: The rule of thumb is that supplies must be “consumable” or used up. So items such as pens, notebooks, highlighters, envelopes, stamps, ink cartridges, printer paper, and sticky notes can be claimed. 

Excluded: Generally speaking, capital or hardware costs cannot be claimed. This includes the purchase of office furniture, computer, printer, monitor, mouse, headset, lamps, heaters, and coffee supplies. 

Home expenses 

Additional allowable expenses include a portion of electricity, heat, home internet, rent, and maintenance costs. Mortgage payments are not included.

The portion that’s covered will depend on whether the workspace is in a dedicated area (i.e. converted spare room) or a common area space (i.e. dining table).

Making the Claim & How to Calculate

In order to make a claim with the Detailed Method, the employee will have to gather the following information: 

  • Total size of workspace in square feet or meters 
  • Total size of all finished areas in your home (including your workspace) 
  • Supporting documents and receipts for all expenses being claimed
  • Documents showing your employment income and deduction (i.e. T4 slip)
  • Form T2200S signed and completed by the employer 

Determining the deduction amount is quite straightforward as the CRA calculator does the heavy lifting. Employees simply need to input information such as the area of their work space and home, hours per week used for work, related maintenance and supply costs, and other expenses. 

After inputting all information, a result will be provided, similar to the $400 flat rate with the deduction amount for tax return and T777S form inputs. 

Making the $400 or Form T2200S Decision

For employers, the temporary flat-rate method is the no-effort option. However, employees may be able to claim more – especially if they are renting their homes – if they receive Form T2200S. 

By providing Form T2200S, you’re giving your employees the option to choose the deduction method that best suits their needs. You can either provide it to all employees by default or provide it as requested. 


COVID-19 and Your Taxes – Benefits & Slips Overview:

When situations arise that force us to change our working behavior, such as being in self-isolation or quarantine due to COVID-19, this may make us feel uncertain about what it all means in terms of our taxes and if it changes how we handle them.  At the time this is being written, there are no specific tax regulations or changes related to being self-isolated or quarantined, with respect to this virus.

Whether you are an employed individual or a self-employed individual, it is understandable to have questions because of this situation, so we are answering a few of the most common ones we are hearing.

What happens if I have to stop working or I am working less?

The federal government introduced some new measures to assist those that have had to stop working or have been laid off.

Canada Emergency Response Benefit (CERB):  CERB provided a taxable benefit of $2,000 per month, for up to 28 weeks to qualifying individuals; workers who lose their income as a result of the COVID-19 pandemic or earn less than $1,000 in a 4 week period.  CERB was discontinued on Sep 26th, 2020 to be replaced with CRB.

Canada Recovery Benefit (CRB):  CRB was  put into effect on Sep 27th, 2020 and has similar eligibility criteria as CERB. Although it is a taxable benefit, CRA deducts 10% taxes at source which you can claim as a refundable credit on your tax return.

When you have a decrease in your income, this means that your taxable income is going down.  Your taxable income is what determines what rate of tax is used to calculate how much tax you owe.  Less employment income will mean less taxable income, and that will be indicated on your T4 slip. If you apply for CERB or CRB, the benefit will be added to your income increasing your tax liability. The CERB and CRB  income will be reported on a T4A slip. CRA will withhold 10% taxes from your CRB earnings and none from your CERB, but this does not cover the first federal and provincial tax bracket. It is recommended to save some money on the side in case you are required to pay taxes when you file your income tax return.

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I am being required to work from home in self-isolation, but I will need supplies, can I write those off?

If your employer has made the decision to ask employees to work from home, your work environment has changed, and in some cases, what you need to do your job effectively has also changed.  In most cases, employers are making sure employees are outfitted with all the necessary supplies they need for a quarantine period, but there is a possibility that you may have to get yourself some items while you are away from the office.  If you are not provided with an allowance by your employer, or they are not directly reimbursing you for those expenses, you may be eligible to claim some of your employment expenses.

Your employer will need to provide you with a completed and signed T2200 – Declaration of Conditions of Employment form.  Once you have that, then you are able to complete the T777, Statement of Employment Expenses form, outlining your costs.  Make sure you have all of your receipts, and remember, these need to be reasonable expenses.

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What if I get Employment Insurance benefits (EI), while I am laid off?

Employment Insurance Benefits (EI), is another type of income that is a part of your total taxable income.  You will receive a T4E – Statement of Employment Insurance and Other Benefits that will indicate your EI earnings and all withholding amounts. Similar to CRB, CRA will withhold 10% taxes from your EI earnings. It is recommended to save some money on the side in case you are required to pay taxes when you file your income tax return.

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What If I have received CERB or CRB instead of EI?

If you receive EI for your job loss, you should not apply for CERB, CRB, or other emergency benefits. If you have received an emergency benefit by mistake, please call the EI department and request a change in your benefits (1-800-206-7218).

If the mix up has not been fixed by the time you file your tax return, you report your emergency benefit as indicated on your T4A slip. Keep in mind that you will be required to pay taxes on the full CERB payments since no taxes have been withheld at source.

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Can I apply for multiple benefits if I am eligible for them?

No, you cannot combine emergency benefits. If you check the eligibility criteria for each emergency benefit, it will inform you of the other benefits you cannot apply for in the same period. For example; if you lost income due to COVID and are taking care of your sick mother who has COVID, you either apply for CRB or the Canada Recovery Caregiving Benefit (CRCB).

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Are my taxes still due at the same time?

Individual tax returns and payments are due on April 30th, while self-employed returns are due on June 15th.  In some extreme cases, the CRA might mandate an extension of the deadline; this will be announced by the CRA if/when they make the decision to do so, any given year.  Until such time, ensure that you are still completing your taxes by the appropriate deadline, and paying any taxes owing by April 30th.

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How will I get my taxes done if no one is working and I use a tax preparer?

The process of completing your income taxes remains the same for the most part.  Concerns in health situations are that limiting contact with tax preparers, means you might have to find an alternative to how you used to get your income taxes completed.  Many accountant and taxation offices are still completing returns utilizing drop boxes and digital file-sharing to get your documents with meetings taking place via phone or through an online meeting application.  If you don’t wish to drop off in person anymore, there are several tax solutions available to you right now online.

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I think I am missing some forms for my return, but my employer is now away, how do I get them?

Though it is still your employer’s responsibility to get you your employment tax forms, you do have another option.  In your CRA My Account, you have access to all of the tax forms that have been completed and remitted on your behalf, including T4s, T4E, T4Ps, T5s, etc.  Some RRSP contributions slips and T3s, may not be available until the end of March, so if you are expecting those, be mindful of when these forms will be available, as you don’t want to file an incomplete return.

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I am self-employed and have to shut down for a few weeks so I am losing a lot of money, does that change the information I use to file?

Yes, for self-employed individuals, you file an additional form called a T2125 – Statement of Business or Professional Activities to report your business income and expenses, as well as your vehicle use, capital costs and your business use of home expenses.  As a business owner, you should be tracking your income and expenses in some type of bookkeeping format.  This is very essential so that you can see how your business is doing over a period of time, and it makes tax time so much simpler for you. Any loss in your business income will reduce your tax liability. However, if you apply for CERB or CRB, the benefits income will be added to your total income and thus increase your tax liability.

The federal government introduced some new measures to assist those businesses that have employees:

Temporary Wage Subsidy (TWS): This is a 3-month subsidy on the payment of source remittances, equal to 10% of the remuneration paid, for income taxes withheld from employees and paid to the CRA. This subsidy is taxable income and will require accounting for it in your bookkeeping records.

Canada Emergency Wage Subsidy (CEWS): The Canada Emergency Wage Subsidy (CEWS), provides financial support to businesses that have seen a 30% loss in revenue, as compared to the same time last year, and aims to assist those businesses in retaining their employees or even re-hiring those they’ve laid off.  This subsidy is taxable income and will require accounting for it in your bookkeeping records.

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How do I report the benefits on my income tax return?

As mentioned above, you will be receiving a T4A slip reporting the different types of benefits you have received. On your income tax and benefit return, report on Line 13000 – Other Income the following income:

  • Box 197 – Canada Emergency Response Benefit (CERB)
  • Box 198 – Canada Emergency Student Benefit (CESB)
  • Box 199 – Canada Emergency Student Benefit (CESB) for eligible students with disabilities or those with children or other dependents
  • Box 200 – Provincial/Territorial COVID-19 financial assistance payments
  • Box 202 – Canada Recovery Benefit (CRB)
  • Box 203 – Canada Recovery Sickness Benefit (CRSB)
  • Box 204 – Canada Recovery Caregiving Benefit (CRCB)

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How do I repay the benefit?

If you find out that you have received a payment that you were not eligible for, you can repay it by either returning it through your “My Account”, or online banking to “Canada Emergency Benefit Repayment”, or by mailing a cheque to:

Revenue Processing – Repayment of CRB or CERB
Sudbury Tax Centre
1050 Notre Dame Avenue
Sudbury, ON, P3A 0C3

If you repay the benefits before Dec 31st, 2020, CRA will not issue an income slip and you will not have to report the benefit on your tax return. If you cannot meet the deadline and want to request a payment plan, call the CRA COVID center at 1-833-966-2099.

Check out these other articles for more info:

FAQs

Answers to commonly asked questions:

What services and programs are available to me?

What kind of income support is available?

Both federal and provincial governments have provided a variety of programs and benefits for those in need of financial assistance during the Covid-19 pandemic.

Below is a list of federal programs designed to help. More information about assistance specific to your province can be found by visiting you local government website.

Have you been laid off?

The following government assistance programs may be available to you:

Are you quarantined, self-isolating, or caring for someone ill?

The following government assistance programs may be available to you:

Are you self-employed?

The following government assistance programs may be available to you:

Are you caring for children?

The following government assistance programs may be available to you:

Are you a seasonal, part-time or contract worker, who has had your hours reduced?

The following government assistance programs may be available to you:

Family assistance programs

Government child benefits and assistance are available to aid in the added costs of childcare and expenses.

Are you ill or caring for someone ill?

The following government assistance programs may be available to you:

Do you have children?

The following government assistance programs may be available to you:

Assistance programs for businesses

Government programs are available to provide relief to businesses, such as assistance with wage subsidies, loans, and general tax relief.

Are you an employer?

The Canadian government has provided economic relief for employers on a number of levels, including:

Are you a non-profit or small business?

The following government assistance programs may be available to you:

Assistance programs for seniors

A new government program has been proposed to provide financial relief to seniors, and rules surrounding RRIFs have been temporarily amended.

Do you have RRIFs?

Required minimum withdrawals from RRIFs have been reduced by 25% for 2020.

Find out more by visiting the federal government website here.

Do you qualify for Old Age Security (OAS), or the Guaranteed Income Supplement (GIS)?

Seniors who qualify for Old Age Security (OAS) will be eligible for a one-time, tax-free payment of $300, with those eligible for the Guaranteed Income Supplement (GIS) eligible for an extra $200. Those eligible for both will receive the combined $500 total.

If you are already receiving OAS and/or GIS payments, there is no need to re-apply, as these increases are automatic.

Continue to check the federal government website for more information.

Tax assistance and personal finance 

Tax credits and payment deferrals may be part of relief efforts for qualified Canadians.

Do you qualify for tax credits or deferrals?

Learn about the Goods and Services Tax Credit payment

Assistance for property owners 

You may be eligible to defer your mortgage payments due to suspension of evictions and rent hikes.

Do you own property?

Property owners facing financial stress may be eligible for mortgage payment deferral up to 6 months.

To find out more, visit the Canada Mortgage and Housing Cooperation website here.

Assistance for Canadians with disabilities

Canadians with disabilities may be eligible for additional financial support

Do you qualify for disability support?

Small Business Tax Strategies – Reduce Income Tax (2020)

There are many ways for small businesses to legally reduce their income taxes in Canada. This guide offers some of the top strategies to lower your taxes and keep more money in your business.

ARTICLE TABLE OF CONTENTS

  1. Always Collect Receipts
  2. Manage RRSP and TFSA Contributions
  3. Maximize Your Noncapital Losses
  4. Increase Charitable Tax Credits
  5. Strategize Capital Cost Allowance
  6. Split Your Income
  7. Home-Based Business Deductions
  8. Incorporate Your Business?
  9. Reduce Your Income Tax Today

Note that some of these only apply to people who are running sole proprietorships or partnerships and file their income tax using a T1 personal income tax return.

  1. Always Collect Receipts – Running a business is time-consuming, and some business people can’t be bothered to get or keep receipts for “little” things. However, the parking fee on the way to meet a client, the few letters you mailed, the bag of coffee you picked up for the office—all these little things can really add up over the course of a year.

Maximize your income tax deductions by collecting the receipts for all your purchases that are or may be business related and recording and filing them appropriately.

Remember that the Canada Revenue Agency (CRA) does not normally accept credit card statements as proof of expenditures. You must keep your original receipts in case they are requested by the CRA.

  1. Manage Your RRSP and TFSA Contributions – The Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Accounts (TFSA) are excellent income tax deductions for small-business owners, particularly for sole proprietors or partners.

Whether you should make the maximum RRSP contribution every year depends on how much your income fluctuates from year to year. The tax savings from an RRSP contribution are based on your marginal tax rate and, since some or all of your allowable RRSP contribution can be carried forward into subsequent years, you are better off saving RRSP contributions for years in which you expect a higher income.

If your small business is structured as a corporation, the situation is more complex. RRSP contribution levels are based on earned income from salary, so if you choose to receive some or all of your income in the form of dividends, this will reduce or eliminate your RRSP contribution.

As the name implies, the TFSA allows you to shelter savings and investment income from taxes. Income and capital appreciation from stocks, bonds, or other interest-bearing instruments is tax-free inside a TFSA. If you’ve maxed out your RRSP contributions and need a tax-free place to put cash or investments, the TFSA is a good choice. 1

  1. Maximize Your Noncapital Losses – Similarly, if your business has a noncapital loss (defined as when your expenses exceed your income for the business) in any year, consider when you can best use this loss to decrease your income tax bill before you use it.

Noncapital losses that occurred after 2005 can be used to offset other personal income in any given tax year, by carrying them back up to three years or forward up to 20 years. It may make more sense for you to carry your noncapital loss back to recover income tax you’ve already paid, or to carry it forward to offset a larger tax bill in the future than it does to use it in the tax year the capital loss occurred. 2

  1. Increase Your Charitable Income Tax Credits – Charitable donations to registered Canadian charities or other qualified donees earn you tax credits. And charitable donations that total over $200 provide you with a higher tax credit because they’re assessed at a higher rate. 3

To maximize your charitable income tax credits, consider giving more to the registered charities of your choice this year. If you make $30,000 in income and give even 5% of your income, the fortunate charities would get $1,500 and you’ll receive a nice deduction. Be aware, though, that nonregistered Canadian charities, American charities, and political parties don’t count as charitable income tax deductions.4

  1. Strategize Your Capital Cost Allowance – Most Canadian small business owners know that instead of just deducting the cost of whatever depreciable property they’ve acquired to use in their business in a particular year, they need to deduct the cost of the depreciable property over a period of years, through a capital cost allowance (CCA) claim.

But many small business owners are not aware that they don’t have to claim CCA in the year that it occurs. The CCA is not a mandatory tax deduction, so you can use as much or as little of your CCA claim in a particular tax year as you wish, and carry any unused portion forward to help offset a larger income tax bill in the future. It doesn’t make sense for you to take your full CCA claim deduction in a year that you have little or no taxable income.5

Another way to maximize your CCA claim is to buy (and sell) your assets at the right time. You want to buy new assets before the end of your fiscal year and sell old assets after the current fiscal year.

Be aware, though, of the 50% rule: In the year that you acquire an asset, you usually can only claim 50% of the CCA that you would normally be able to claim. And in some cases, the “available for use” rule means that you can’t claim capital cost allowance until the second tax year after you acquired an asset.6

  1. Split Your Income – This small business tax strategy lets you take full advantage of the marginal tax rate disparities. The higher your income, the higher your marginal tax rate in Canada. By transferring a portion of your income to a family member with a lower income, such as a spouse or child, you can reduce the marginal tax rate on your income.

This is an especially powerful tax strategy for small business owners with children of post-secondary school age. Suppose that you employed your 19-year-old daughter in your business, paying her a salary totaling $10,000. Because of the basic personal income tax exemption, she would pay very little income tax, and would have a nice nest egg to help pay for her education. Meanwhile, you’ve lopped $10,000 off your income for the year, decreasing the amount of income tax you personally owe.

If you intend to employ a family member in your business, keep your claims reasonable and complete all the paperwork as you would when hiring any employee or contractor (have them properly invoice you for work performed). Hiring your spouse for thousands of dollars a month for a few hours of work answering the phone or filing is a sure way to attract the attention of the CRA and get your claims rejected.

The rules for income splitting are complex and have been tightened recently, so be sure you know the current CRA guidelines before you plan on this deduction.7

  1. Look for Home-Based Business Deductions – Do you operate your business out of your home? If so, there may be more deductions available to you. While not every business is suitable for a home-based business, home-based businesses do have advantages when it comes to income tax.

Besides the business use-of-home deduction, home-based business owners can deduct a portion of many home-related expenses, such as heat, electricity, home maintenance, cleaning materials, and home insurance. If you own your home, you can also deduct portions of your property tax and mortgage interest.8

  1. Incorporate Your Business? – One reason many sole proprietors and partners incorporate their businesses is because of the tax advantages of incorporation. The best known of these tax advantages is the small business tax deduction, whereby the income of qualifying Canadian-held corporations is taxed at a special “reduced” rate. For Canadian-controlled private corporations claiming the small business deduction, the corporate net tax rate is 9%. For other types of corporations, the corporate net tax rate is 15%.9

However, incorporating your business as a tax strategy will only be effective if your business has grown enough for incorporation to be worthwhile. You not only have to have a significant income to offset the costs of incorporation, but you also need to be prepared to leave enough of your business earnings in the corporation to benefit from corporate tax deferral.

For instance, if you operate an incorporated business and the corporation’s profits in a given year are $60,000, but you take $60,000 from the corporation in salary, you will need to put higher emphasis on tax planning so you don’t end pulling 100% personally on your T1 – making incorporation potentially pointless.

Start Reducing Your Income Tax Today
While not all of these strategies will work for every small business, hopefully this list has gotten you thinking ​about tax planning. The amount of income tax you pay is not written in stone. There are legal, sometimes simple things you can do to decrease your income tax bill—small business tax strategies that you can start applying today.


Sources:

  1. Canada Revenue Agency. “The Tax-Free Savings Account.” Accessed Jan. 28, 2020.
  2. Canada Revenue Agency. “Line 25200 – Noncapital Losses of Other Years.” Accessed Jan. 28, 2020.
  3. Canada Revenue Agency. “How Do I Calculate My Charitable Tax Credits?” Accessed Jan. 28, 2020.
  4. Canada Revenue Agency. “Which Donations Can I Claim?” Accessed Jan. 28, 2020.
  5. Canada Revenue Agency. “Basic Information About Capital Cost Allowance (CCA).” Accessed Jan. 28, 2020.
  6. Canada Revenue Agency. “Amount of Capital Cost Allowance (CCA) You Can Claim.” Accessed Jan. 28, 2020.
  7. Canada Revenue Agency. “Guidance on the Application of the Split Income Rules for Adults.” Accessed Jan. 28, 2020.
  8. Canada Revenue Agency. “Business-Use-of-Home Expenses.” Accessed Jan. 28, 2020.
  9. Canada Revenue Agency. “Corporation Tax Rates.” Accessed Jan. 28, 2020.

How long do you have to file Adjusted Returns? (Personal & Business)

How long do you have to file a T1 adjustment?

If you find yourself in a situation where you have filed your personal tax return and then realize that you need to make a change, there are some steps you need to follow.

First, you need to wait until the notice of assessment on your original return is received before you file a T1 adjustment.  Do not file a second tax return for the same tax year.  This will ensure that CRA has processed the original return and can then process the adjustment without any confusion.

Do not file a second tax return for the same tax year

Once you have received your notice of assessment, file only a T1 adjustment for the changes you want to make.  Do not file a second tax return.  You are not required to submit receipts or slips if you file your T1 adjustment electronically, however, you may need to provide them if asked. If you choose to submit your T1 Adjustment by mail, you are required to send in the receipts or slips to support your adjustment.

You are able to ask for an adjustment to be made to a tax year ending in any of the 10 previous calendar years.  For example in 2016, you can adjust tax returns dating back to 2006.  Once you have sent in your T1 Adjustment, CRA has processing times up to 8 weeks before a Notice of Reassessment is issued.  The reassessment will state any changes made or why changes were not allowed.

How long do you have to file an Amended T2?

If you are a Canadian Controlled Private Company (CCPC), you can amend your corporate tax return within 3 years of the date of the original notice of assessment.  If you are not a CCPC, you can amend a tax return within 4 years of the original notice of assessment date.  An additional 3 year extension is possible for certain situations including;

  • The Corporation needs to carry back a loss or credit from a later tax year;
  • A reassessment of another taxpayer affects the corporation’s taxes;
  • Various non-resident transactions affect the corporation’s taxes

Before filing an Amended T2, wait until the Company has received the Notice of Assessment on the original return filed.  Then, proceed with filing an Amended T2.  These can be filed electronically or by mail.  If the amendment includes a carry back for a loss or a credit to a previous tax year, additional schedules are required to be provided to CRA which include;

  • Schedule 4 – Corporation Loss Continuity Application – if you are carrying back a loss
  • Schedule 21 – Federal and Provincial Foreign Income Tax Credits – if you are asking to carry back foreign tax credits on business income
  • Schedule 31 – Investment Tax Credit – If you are asking to carry back an investment tax credit
  • Schedule 42 – Calculation of Unused Part I Tax Credit – If you are asking to carry back a Part I tax credit

Once CRA has processed the amendment, the Company will receive a Notice of Reassessment.  CRA does not provide a time frame for how long a reassessment will take.


If you have questions please reach out to one of our representatives at 587-754-2910 or click hereto send us an email!

“Sole Proprietorship vs Incorporation” – Planning your business strategy

Should you incorporate your small business? (Sole proprietorship, partnership etc)

Jumping from Sole Proprietorship to Corporation in Canada? We’ll break it down step by step.

Earning side income or owning a small business can be a very rewarding experience, both emotionally and financially. The obvious perks of such a venture are unlimited earning potential and a whole lot more freedom and choice.

In Canada a business can operate as a sole proprietorship or a corporation. Often most small businesses operate initially as sole proprietorships and later incorporate for various reasons discussed below.

Editor’s Note: The same principles discussed in relation to sole proprietorships apply to limited partnerships.


Sole Proprietorship:

Pros

  • Lower Cost of accounting and administration fees
  • Business is filed on a T2125 schedule on your personal income tax return
  • You do not have to reconcile your bank or credit card accounts
  • You do not have to declare your “personal use of company funds”
  • Accounting method is simple and can be done in excel or from loose paperwork alone
  • You do not need an accounting software
  • No accounts payable or accounts receivable taken into account when filing
  • Can have a GST # and can have a Payroll #
  • Great for businesses with “NET” (after write offs) income of $30,000 or less

Cons:

  • Tax rate scales based on net income from 25-45% tax depending on which tax bracket you fall under
    • Ex) After you’ve earned over $90k you’re looking at approximately 40%-50% tax on each additional dollar earned. Our tax system works like this to provide lower tax rates to low income earners and higher rates to higher income earners (in theory).
    • At the end of each year you add up all the business revenue you earned in the year and subtract all the related expenses (note: you can deduct non-direct expenses such as office and vehicle expenses of a business on a pro-rated basis). The net income (earnings less expenses) is then used to determine the amount of tax you owe. For example, if you earned $50,000 and had $30,000 in expenses for a net income of $20,000 you would have a tax bill of approximately $4,000 [($50,000 – $30,000) x 20% tax rate].
  • Restricted to January – December 31 st fiscal reporting period every year
  • Net income is added to other taxable income for the taxpayer
  • No deferral options, and minimal tax planning tools
  • Higher risk of audit by CRA
  • No accounts payable or accounts receivable taken into account when filing
  • By default you do not qualify for EI on self employment earnings
  • In Alberta no qualification for WCB which can limit working opportunities in industries such as trades and construction 
  • Harder to acquire Import/Export accounts & funding
  • Higher lending rates and requirements are not strict

 

Sole proprietorships typically have the following government reporting requirements:

  • Initial business registration (Declaration of a trade name and opening on a “business bank account”  – Cost $45- $150 
  • Annual personal tax returns (T1) – Cost $150 – $1000
  • Payroll remittances and filings (if additional employees exist besides the owner)
  • Sales tax (if registered for GST/HST)

 

Very Limited Liability Protection: 

Under a sole proprietorship the owner is personally responsible for all debts and liabilities and legal costs of the business. These debts may include credit cards, business loans or liabilities arising out of lawsuits. If the small business operating as a sole proprietorship is unable to fulfill these debts a creditor is almost certain to seek restitution through the forced sale of personal assets (house, car, investments) of the owner in court.

 

Incorporation:

Pros:

  • Corporate Tax rate for NET income under $500,000 is a flat 15% in Alberta
    • When NET income exceeds $500,000 – amounts above are taxed at an additional 38.5% tax. This is significantly lower than the 45-50% tax rate on the income equivalent through a sole proprietorship based on personal income tax brackets.
  • Flexible “Fiscal” reporting period (Not restricted to January – December 31st)
    • This gives you maximum flexibility to tax plan (For example place your year end during a “slow” season in your business)
  • Lower risk of audit – with more defined rules for what triggers an investigation
  • Additional options available:
    • Declare Shareholder income as T4 Employment Wages or Dividends
    • Access Income Deferral through use of “Bonuses” 
    • Borrow money against your own company and pay it back over extended periods of time at interest rates as low as 1%
    • Purchase real estate inside the corporation
    • Acquire assets in the business name – which reduces personal liability
  • More readily available options for business lending and better interest rates 
    • For example: Easier to acquire vehicles, leases on equipment and other operating capital to fund advertising, business development or expansion expenses
    • Easier to acquire fleets of vehicle and better rates for financing
  • In Alberta a corporation is required to apply for WCB
  • More favorable rates on business insurance (Errors and omissions, Liability and commercial rates)
  • Easier to set up Import/Export accounts 

 

Cons: 

  • Higher Cost of accounting and administration fees
  • Incorporation Fees range from $500 – $1500 depending on the structure
  • Tax return for a corporation: T2, Financial Statements, Notice to Reader, Engagement Letter (Prices range from $350 – $10,000/year) 
    • May  have increased reporting obligations such as a Review or Audit of year end statements in situations where the business activities require “Bonding” These can only be prepared by a qualified and approved CPA (Thus the higher price ranging from $3000 – $25,000)
  • Higher government regulations compliance requirements: Requires reconciliations be done on all company owned accounts: Bank Statements, Credit card statements, loans & financing accounts 
  • Declaration of shareholder loan – responsibility for declaring money put into the company and money withdrawn from the company by the owners
  • Requires more diligence from shareholders with emphasis on tax planning, budgeting & using ongoing cashflow & projection programs to ensure long term sustainability of the business. 

 

Corporations may be subject, but not limited to the following reporting requirements:

  • Setting up articles of incorporation
  • Annual information return – this is a brief return that details information about shareholders and general information about the corporation (filed with the provincial government for a fee) 
  • Maintaining corporate records, which are separate and distinct from personal records (must be held for 6 years per CRA regulations)
  • Filing an annual corporate income tax return which include detailed financial statements
  • Payroll remittances and filings (if the corporation has employees)
  • Sales tax – if sales of the corporation exceed $30k you must register for GST/HST and track sales tax spent and collected

 

Write offs: 

Typically expenses written off by corporations can similarly be written off by sole proprietorships, however, a corporation allows for additional income splitting in certain situations which may lower overall taxation. For example, suppose a spouse is the shareholder of a corporation that manages the overall operations of the business. If the other spouse helps out the business with administration and other tasks a reasonable salary can be paid which can be written off by the business and taxed at a low personal rate. 

 

Increased Liability Protection:

A corporation allows for an owner/shareholder to separate him or herself from the legal responsibilities of the business. If the corporation is unable to pay debts or liabilities the creditor or plaintiff may only seek assets owned by the corporation and not the shareholder. There are certain situations in which a shareholder may be personally liability, such as providing personal guarantees for corporate debts, remitting sales tax and payroll remittances, so talking with a knowledgeable lawyer is always a good idea.

 

Justification and advice on cost comparison vs value: 

Often I see small business owners of both sole proprietorships and corporations attempting to skimp out on paying professional fees. Having run my own small accounting business myself, and having provided tax planning services in an accounting firm, I understand the value of these services is often difficult to quantify or justify, especially considering the cost of professional fees. However, I’ve also seen situations where personal and corporate bank accounts have been frozen by the CRA for non-compliance, or an unexpected tax bill cripples cash flow because these issues were neglected. There can be tax minimizing opportunities lost (such as tax deferral, income splitting and other deductions) by business owners when they fail to engage a competent accountant. Paying a competent professional can ensure a business handles these issues before they become massive problems.

 

Tax Strategy: 

The corporate small business tax rate in Ontario is 15% on the first $500,000 of income. Sweet sassy molassy, that’s way lower than the personal tax rates above. Why doesn’t everyone just incorporate? I know, right? Well, hold on there that rate is for income earned in the corporation and it must stay there until paid out to the owner via salary or dividends. This is where tax planning comes into play and can drastically affect your take home pay if you’re earning some decent money.

Here’s an example of a business earning $100,000 in income under the sole proprietorship VS corporation.

Sole Proprietorship:

  • NET Income: $100,000
  • Taxes Payable: $26,600

Corporation:

  • NET Income: $100,000
  • Taxes Payable: $15,500

Now recall that for a corporation we have to pay a salary out to the owner in order for him or her to access the profits. If the owner wanted $70,000 in salary and wanted to leave $30,000 in the business for future investment it would look like this:

Sole Proprietorship Corporation
Net Income $100,000 $30,000 (reduced by $70k salary)
Business Taxes Payable $26,600 $4,650
Employment Income $70,000
Employment Taxes Payable $15,000
Total Taxes Payable $26,600 $19,650

By incorporating and paying a $70k salary the business owner would save close to $7k in taxes. If the business owner would live off a salary less than the net income of the corporation we can see considerable tax deferral and capital appreciation by leaving the funds in the corporation and investing. The Canadian corporate tax rate has decreased substantially over the last few decades to encourage business spending.

______________________________________________________________________

Final Decision: Incorporation: Is it right for you?

There are a lot of other considerations when thinking about incorporating a business. While the administrative and compliance responsibilities and costs are much greater under a corporate structure the benefits include liability mitigation of the owner, tax savings and estate planning. It probably doesn’t make sense for a small business with minimal operating risk and net income under $30k to incorporate as a low tax rate is already enjoyed. As a business grows so too do the tax liabilities and operational risk, which may indicate it’s time to prep those articles of incorporation. When a business reaches net income above $30k it may be a good time to discuss if it’s time for incorporation. Each business owner should consult with a lawyer and accountant to determine if the increased costs are offset by the benefits.