Your 2021 Tax Return: What You Need to Know

It's tax time, and people have lots of questions about filing their taxes. We're here to answer some of the most frequently asked.

We are now entering what is technically the third year of the COVID-19 pandemic, and this marks the second tax filing year that may see Canadians tax returns affected by the restrictions, hardships and changes it’s led to. This means that tax season, which can already be rather confusing for many taxpayers however complex their tax return, is even more so.

This is not helped by the fact that some things are not yet quite clear on a regulatory level. There is uncertainty about when various new and revised deductions, credits, and perks promised by the federal government in the last budget and/or during the recent electoral campaign will take effect.

The good news is that if you trust your 2021 tax return to an accounting professional they will have real time access to the latest rules and regulations, alleviating much of the stress caused by a fear of getting things wrong.

For now, however, here we are going to take a look at some of the answers most commonly asked by those getting ready to file a 2021 personal tax return in Ontario.

When are 2021 Income Tax Returns Due?

The deadline for most Canadians to file their 2021 income tax and benefit returns is April 30, 2022. You have until June 15, 2022 if you’re self-employed. If you owe taxes, you have until April 30, 2022 to pay them, even if you are considered self-employed. There have been no announcements about extensions as of the date of writing.

What is the Canada Worker Lockdown Benefit?

The Liberal Party announced measures to benefit Canadians after winning a minority government in the September 20 election, including the Canada Worker Lockdown Benefit. Employees who were impacted by lockdowns will receive $300 per week under the new benefits, which began on Oct. 24 with the conclusion of the CRB. This benefit is also available to those who are unable to obtain Employment Insurance. Currently, the government states it will be in effect until May 7, 2022.

Both the CERB and the CRB are taxable income that must be declared on your income tax returns for 2020 and 2021. The new benefit will almost certainly be handled in the same way. This could result in a higher tax bill in April 2021, depending on your tax bracket.

Remote Workers and T2200 Declarations

Once thought of as a short-term stopgap, for many, working remotely, out of their office and from home, has become the norm, although many are being informed that a return to work as usual will b forthcoming ‘soon’. However, the ever-changing severity of the pandemic means that many people have spent the past 12 months in their home offices again, and will be wondering what they can claim via the T2200 this tax year on their tax return versus last.

Employees who worked remotely in 2020 were permitted to deduct up to $400 in home costs from their taxable income without having to retain receipts or obtain a validated T2200 form from their company. Furthermore, as a tax-free benefit, employers could compensate employees up to $500 for home office equipment, such as office furniture.

This initiative was praised by many as sensible and fair. Employees felt like their extra efforts to keep working, even with their formal offices closed, were in some way being recognized and compensated and employers were spared some of the headaches involved in doing so. Therefore, it made sense for the initiative to remain in effect for this tax year too.

As of right now, the government says it’s going to stand by its election promise of extending this benefit to the 2021 tax year, but a once discussed increase for home costs from $400 to $500 has yet to be formally announced.

Will Higher Income Taxpayers Be Paying More This Year?

The Liberal Party vowed in its election campaign to establish a minimum tax law requiring high earners (those earning more than $216,511 in 2021) to pay at least 15% of their income in taxes each year. The goal is to eliminate high-income earners’ ability to pay little or no tax through deductions and credits. However, as of the publication of this article, neither the government nor the CRA had passed or confirmed this measure.

What About Homebuyers? Will They See Tax Breaks as Promised?

For Canadian home buyers, the government offers a host of tax-related measures, including:

• For those who add a supplementary unit to their house for immediate or extended family, a new 15% Multigenerational Home Renovation tax credit is available on up to $50,000 in renovation and construction expenditures. This might save you up to $7,500 in taxes.
• An increase to the 15% First-Time Home Buyers’ tax credit, which would double the amount that can be claimed from $5,000 to $10,000, potentially saving up to $1,500 in taxes.
• For Canadians under the age of 40, a new tax-free First Home Savings Account allowing them to save up to $40,000 for their first home. Contributions would be tax-deductible, and withdrawals would be tax-free and without conditions. The monies must be repaid within 15 years, unlike the Home Buyer’s Plan, which enables people to borrow up to $35,000 tax-free from their registered retirement savings plans (RRSP).
• A new 15% tax credit applies up to $500 in payments made to a contractor to repair an appliance in your house; do-it-yourself repairs are not eligible.

Unfortunately, these proposed tax reforms for housing are just that: suggestions. So hold off on building that in-law suite for the time being.

How Can I Keep Up with All These Tax Uncertainties?

So, even if tax filing season is already open, everyone is (maybe) still waiting on news. So what’s the best way to ensure that your 2021 tax return not only meets all the regulatory requirements AND ensures that you don’t pay more tax than you need to, and you get back all the money to which you are entitled? The simple answer is, even if you usually do your own taxes, the 2021 tax year may be the year to go pro instead.

As it’s our job, accountants keep up with even the tiniest bits of news about taxes and tax changes, while also having the knowledge and expertise to help you uncover, by a full examination of your situation, every tax related scenario that applies to you. Also, by letting your accountant worry about your taxes this year you’ll be taking some stress out of your own life, and given how trying the past few years have been, who doesn’t want that! Ready to get started on your tax return the right way? Call 905 667 1727 or message us here today.