What Are Tuition Tax Credits, And How You Can Claim Them?

Two students sit on grass outside of a red brick university building

In 2017, the Canadian government eliminated the federal educational and textbook tax credits. However, they did not eliminate the tuition tax credit, allowing students the opportunity to apply tuition costs toward owing taxes. While it may not seem like a huge tax break, it can relieve a significant financial burden on students who balance post-secondary studies with working and making an income.

If you are a student attending, or planning to attend, a post-secondary educational institution, you are going to want to make sure you take full advantage of this tax credit.

What is the Tuition Tax Credit?

The tuition tax credit is an education tax break offered to Canadians by the Canada Revenue Agency (CRA). It allows students 17 years of age and older who are enrolled in post-secondary education to use their tuition to reduce their taxable income.

The tuition amount, up to $5,000, can also be transferred to a spouse, common law partner, parent or grandparent.

In order to be eligible for the tuition tax credit, students must attend a post-secondary level course at an accredited institution in Canada – although individuals may qualify at school abroad as well.

Student Loan Interest Deduction

In addition to the tuition tax credit, students may also be able to deduct interest from government issued student loans from their taxes. This only applies to government loans – interest from personal loans or lines of credit are not eligible.

Other School-related Deductions

Although Canada has done away with claiming textbooks and other school-related costs as tax deductions, students can take advantage of tax breaks related to moving costs.

The moving expenses deduction applies to individuals who move more than 40 kms away from home to attend an accredited educational institute on a full-time basis. This deduction may cover the costs of moving, airfare and the connection and transfer of utilities.

However, there are restrictions. A student can only apply relocation costs against the tax they are required to pay on scholarships, bursaries, fellowships, prizes and research grants.

How to Claim Tuition Tax Credits

The tuition tax credit is a non-refundable credit, meaning that if the tuition amount is greater than the tax owed, you won’t get a refund from the claimed amount. It works by decreasing or eliminating any amounts owed to the government. Unused tuition amounts can be carried forward to the next year or transferred to a spouse, common law partner, parent or grandparent.

For example, if you claim $4,500 worth of tuition but your owing tax bill is only $1,000, you can transfer the remaining $3,500 to an eligible family member or carry it forward to a future tax year. You will not receive that $3,500 as a refund, as this is a non-refundable tax credit.

Calculating the Tax Tuition Credit

The tuition tax credit is calculated by combining all eligible tuition fees then multiplying the total by the lowest federal tax rate percentage for the current tax. The federal tax rate percentage depends on your income bracket, which depends on which province you live in and how much income you declare.

Claiming the Tax Tuition Credit

Post-secondary institutions issue form T2202A (Tuition and Enrolment Certificate) to students, certifying that you have taken the eligible courses of necessary duration in order to qualify for the tax credit.

The form indicates in Box A the total eligible tuition fees paid as well as the months you were enrolled in school either part-time (Box B) or full-time (Box C).

Take Full Advantage of Tax Relief

If you are eligible for tax breaks because you are a student, be sure to take full advantage of these opportunities. Our accountants at Liu & Associates can answer any questions you have related to your tuition costs and tax claims. Contact us today for more information

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How Do I File Taxes For Someone Who Has Passed Away?

They say that nothing is certain except for death and taxes. However, when dealing with both at the same time, figuring out what to do can create a sense of uncertainty.

Finding closure is an important part of the grieving process and, when a loved one passing away, this often includes tying up loose ends and settling their estate.

A part of settling a deceased individual’s estate is ensuring that their taxes are properly filed one last time. 

If you are responsible for filing taxes for someone who has passed away, it’s important to ensure that the process is completed properly. Here is a quick guide to filing what is called the Final Return:

Types of Deceased Returns

After someone passes away, there are three types of deceased returns that may need to be filed. A Final Return has to be filed after death but it is also possible to have to file other returns known as Optional Returns and Trust Returns.

The final return is an income tax return that is filed for an individual in the year of their death. One final tax return must be submitted on their behalf to cover any income received in that year.

If the death occurred between January and October, the final return is due by April 30th. However, if the individual died between November and the end of December, it is due six months after the date of death.

Optional returns are for claiming income that you would otherwise report on the final return as a means of reducing or eliminating taxes for the deceased. You can claim certain amounts more than once, split them between returns, or claim them against certain types of income.

Lastly, a trust return refers to the tax form package for a trust and is due 90 days from the end of the trust’s tax year. A trust is an entity or individual that holds the right to properties or assets in lieu of the beneficiary that is entitled to them

In this article, we’re going to focus on how to file a final return for someone who has passed away.

Who is the Legal Representative Responsible for Filing a Final Return?

Most people pass away with a will that names the executor, the inheritors, and the beneficiaries. The executor is the individual who has the authority to collect necessary information in order to distribute the deceased’s assets according to the will.

If someone dies without a will, also known as “intestate”, the process takes longer since someone has to apply to the courts to be appointed as administrator. This is usually a surviving spouse or one of the surviving children.

In either case, the executor or administrator is responsible for filing the final return.

Why Does a Final Return Have to be Filed?

When someone passes away, they must pay tax on their regular income but may also need to pay tax on what they owned. A final return is how the legal representative (the executor or administrator) finds out if the deceased owes any income tax.

Income tax is like any other debt and has to be paid by the estate first before the inheritors or beneficiaries receive anything

Once the legal representative files the taxes, they receive an NOA (Notice of Assessment) which includes the date the CRA checked the tax return, details of what is owed, or the amount to be refunded.

After the NOA is received, the legal representative can get a clearance certificate and start distributing property from the estate.

What Information Do I Need for the Deceased’s Tax Return?

hands over a desk holding a receipt and using a calculator

If you are the administrator or executor of the deceased’s will, you will need to collect some information before filing the final return.

You will need to know the deceased’s income from all sources starting from January 1st of the year they passed up to and including their date of death. You may have to look at previous returns as well as contact employers, banks, trust companies, and pension plan managers.

Before you file the taxes, gather any information slips and documentation that you need to indicate or estimate income and deductions.

As far as getting information from the CRA or Revenu Québec, you will need to provide a copy of the death certificate, the deceased’s social insurance number, and a copy of the document proving that you are the executor or administrator.

How to Complete a Final Return

In order to complete a final return for an individual who has passed away, you must first determine the due date for the return in order to avoid penalties and interest for filing late.

When filling out the tax forms, complete the identification area on behalf of the deceased and calculate the total income you need to report. You’ll also want to determine any eligible deductions and non-refundable tax credits before figuring out the total taxable income.

From there, you’ll figure out the refund or balance owing. 

Keep in mind that final returns cannot be submitted online through NETFILE. You will have to mail in the return or have them filed by an accountant.

Need Help Filing the Final Return?

As an executor or administrator, you want to make sure that your loved one’s final return is filled out and filed properly to avoid penalties and ensure the estate is settled as quickly as possible.

Dealing with the loss of a loved one is hard enough without worrying about the estate – but it doesn’t have to be a stressful ordeal!

When you hire an accounting firm such as Liu & Associates, we can help you avoid fines, fees, and penalties from occurring as well as ensure all aspects of the final return are completed thoroughly and properly.

Why not let our experienced accountants handle the financial matters of your loved one’s estate? Contact Liu & Associates today!

The Benefits of Hiring a Small Business Accountant (Instead of Doing It Yourself)

person with long taupe nails using a laptop while looking at paperwork with graphs and charts.

Have you reached a point with your small business where handling your finances is becoming difficult and stressful?

When you’re passionate about what you are doing, starting a business is easy. Running it, however, involves many moving parts.

And if you don’t have the experience or know-how, the challenge can quickly turn to frustration and even negatively affect your small business’s performance.

So what do you do? The short answer is to hire an accountant who can manage all the financial aspects of your small business.

There are many benefits to hiring an accountant and there are a variety of financial responsibilities they can manage on your behalf.

Keep reading to learn more about these benefits and what an accountant can do for your small business:

Should You Hire an Accountant or a Bookkeeper?

Before we get into the benefits of hiring an accountant for your small business, let’s look at the difference between an accountant and a bookkeeper.

Simply put, an accountant can be a bookkeeper but a bookkeeper cannot be an accountant. 

Bookkeepers are able to generate data about the activities of your business through handling day-to-day financial tasks such as recording financial transactions and purchases, managing receipts and tracking sales and payments.

They can provide you with financial insights based on the data collected through bookkeeping.

Accountants, on the other hand, use high-level processes to take that data collected through bookkeeping and produce financial models and projections. They also prepare financial statements, analyze the cost of operations and prepare complex tax returns.

They can also take an advisory role by guiding you through important financial decisions.

You may feel that your small business doesn’t require that level of support in the early stages but, don’t forget, when you hire an accountant you are getting a bookkeeper as well! 

Hiring an accountant to focus on bookkeeping tasks is a great way to establish a relationship with someone who has a vested interest in your finances. Once your business starts to grow, you’ll have them by your side helping you through major decisions.

The Benefits of Hiring an Accountant

young woman sitting at laptop using calculator

Before you attempt to handle your small business’s finances all on your own, consider these six benefits to hiring an accountant:

Create a Business Plan

Whether your small business is already off the ground or you’re looking to get it started, an accountant can be beneficial during the early stages by helping you create an effective business plan.

Business plans are crucial when it comes to opening up access to essential finances in order to get your business started or to help your business grow.

An accountant can help you by ensuring all of the necessary financial details are included in the document.

Organize Your Finances

Once your business is up and running, you need to keep a very close eye on your accounts and make sure everything is in order. This is where having an accountant comes in handy.

Your accountant can help to maintain and organize your business accounts year-round, making it easier for you to understand the financial health of your business throughout the year.

An accountant will help you establish a system for organizing receipts and invoices as well as other important financial documentation your business handles. 

Record Your Revenues

When your small business provides goods and services to customers and clients, you’re only going to make money if they are invoiced. If you have difficulty keeping track of invoices and payments, an accountant can help you out.

An accountant will ensure that invoices are sent to customers on time and keep track of the payments that are made. They can also keep track of outstanding invoices and missing payments.

In order to make sure you are consistently earning revenue through your business, it’s helpful to have an accountant assist with the billing and invoicing.

Help You Save Money

Yes, hiring an accountant is an added expense but by having your finances properly organized, you’ll end up saving money!

The monthly reports drawn up by your accountant will help you get a clearer picture of where your money is going. This way, you can see where you are overspending and where you can cut back spending.

Having an accountant will help you better understand your overall spending patterns and habits, allowing you to better strategize your business’s finances.

Do Your Taxes

Filing business taxes is nothing like filing personal taxes – and you want to make sure they are done properly to avoid an audit.

You also want to make sure you are maximizing your return by claiming everything you are eligible to claim. For these reasons, it’s best to have an accountant handle your business taxes.

Plus, should you face a random audit, all your paperwork and receipts will be well-organized, making the process quick and painless.

Save You Time

Lastly, you should consider the fact that running a small business is a huge endeavor. There are enough hours in the day to manage every aspect of your business.

Instead of trying to figure out how to deal with your business’s finances on your own, and wasting time doing so, you can hire an accountant to take care of it for you.

They are educated, experienced and able to streamline the process of caring for your business’s financial health.

With an accountant on board, you can shift your focus and energy to growing a successful small business!

We’re Not Just Number Crunchers!

Hopefully, you have a better understanding of exactly how an accountant can benefit your small business and help you save not only money but time as well.

If you’re ready to take your business to the next level, our accountants are ready to help! Liu & Associates is a full-service accounting practice that offers financial services for your small business.

Let’s get in touch today!

Claiming Medical Expenses – What You Need to Know

black man with glasses and grey blazer in wheelchair speaking to a woman in a pink cardigan.

Did you know that you can claim medical expenses on your income tax?

In Canada, you can take advantage of the Medical Expense Tax Credit (METC). This is a non-refundable tax credit that allows you to claim eligible medical expenses for yourself, your spouse or your dependents.

The process isn’t as straightforward as simply plugging in your numbers, however. First, you need to determine if your expenses are eligible and if you meet the cost threshold to claim them.

It can be confusing but, here at Liu & Associates, we want to help you understand the process. Keep reading to learn more about claiming medical expenses:

How Does the Medical Expenses Tax Credit Work?

The Medical Expenses Tax Credit is available as a non-refundable credit – meaning that you can’t get money back from it but it will apply to and lower any taxes owing.

You can claim your medical expenses as a tax credit during the year that you paid for them for yourself, your spouse or a dependent. These expenses include prescription medication, prescribed medical tests, etc.

You can view an entire list of eligible medical expenses on the Government of Canada’s website.

However, there is a threshold when it comes to claiming these expenses. The medical expenses must amount to 3% or more of your net income during the taxation period or higher. You can only claim amounts that exceed this percentage.

Alternatively, there is a predetermined base amount for each tax year so the amount you are looking for is the lesser of the two.

For example, this amount for the 2020 tax year was $2397. So if your net income was $40,000, you can deduct any expenses in excess of $1200. However, if your income was over $79,900, you only claim expenses over that $2397.

Keep in mind as well that medical expenses do not have to follow a calendar year, only a 12 month period. This means that as long as the end of the 12 months falls within the tax year you are filing for, you can choose which 12 month period to claim.

For instance, if you had more medical bills between August and February, you can make your 12 month period from August 1st to February 28th and claim all of the expenses in the year February falls into.

Claiming medical expenses in a way that benefits you financially can be tricky. It’s recommended that you speak with a professional accountant in order to maximize your return.

Commonly Overlooked Medical Expenses You Can Claim on Your Tax Return

Man uses calculator on desk with stethoscope

Apart from prescriptions and medication, there are many health-related costs you can claim under the Medical Expenses Tax Credit.

While Canada.ca does list every eligible expense, here are some common ones you may be overlooking:

Health Plans

The premiums you pay for medical and dental plans, along with any co-pay portions of your coverage, can be claimed on your taxes. 

Any premiums paid by payroll deductions will appear on your T4 under “other information” (box 85).

If you pay for private health care coverage, make sure you claim these amounts as well. Your provider should send you a letter stating how much you paid into the plan the previous year.

Gluten-Free Products

If you, your spouse or your dependent suffer from Celiac disease, you can claim the costs of gluten-free products – but only for that individual, not the entire family.

To calculate the eligible expense, take the product cost and minus the cost of a comparable product with gluten. This is the amount you can claim.

Travel Expenses

If you are required to travel more than 40km one way to receive medical services, you can claim your travel expenses.

However, in order to qualify, you must prove that equivalent services are not available closer to your home.

Moving Expenses or Renovations

If you suffer from a severe and prolonged impairment mobility-wise, you can claim up to $2000 to move to a more accessible home. 

Likewise, you can also claim construction and renovation costs to changes made to your current resident to better accommodate a mobility or functioning issue. However, the cost must be reasonable.

Private School/Tutoring

If you have a child with a physical or mental impairment that requires special schooling (such as staff, facilities or equipment), you may be eligible to claim tuition costs.

Also, you can claim tutoring services for those with learning disabilities or impaired mental function. 

In either case, you need to have a medical practitioner certify the need.

Foreign Medical Expenses

If you require medical services while traveling outside of Canada, either in a public or private hospital, you may be able to claim these expenses.

How to Claim Medical Expenses on Your Tax Return

The first thing you need to do when claiming medical expenses on your tax return is to determine if you have an eligible amount. Again, you can always speak to an expert accountant to help you figure this out.

Once that has been determined, it’s important to gather and keep track of all of your receipts. Although you are required to submit them, you need to make sure your totals are accurate.

Plus, should you experience an audit by the CRA, you need to provide proof of your claims.

On your tax return, look for the following lines to enter your amounts:

  • Line 33099 – Medical expenses for self, spouse or common-law partner, and your dependent children
  • Line 33199 – Allowable amount of medical expenses for other dependents

That’s it! Figuring out what to claim is the hard part – actually claiming it is straightforward.

If you have any questions about which medical expenses are eligible and how you should claim them on your taxes, do not hesitate to contact our knowledgeable team of accountants at Liu & Associates.

We can help guide you through the process and ensure that you get the most out of your tax return!

Let’s chat today.

What Happens If I Claim No Income On My Taxes?

overhead photo of hands working on a laptop with eye glasses on desk and pencil holder on desk. crumbled paper is nearby.

Whatever your situation in life, it may be possible that you do not work and earn an income. Perhaps you lost your job or chose to stay home and care for your children.

No matter your situation, you’re probably wondering whether or not you have to file your taxes at all. 

While federals laws do not require you to file a tax return if you have no income to claim, it’s important to determine if there are other situations that may require you to.

The last thing you want is to face an audit or pay the interest and fees for a late tax return.

Even if no situation applies to you where you are required to file a tax return with no income, there are many benefits to doing so anyway.

So, if you find yourself facing tax time with no income to claim, here are a few things you should consider before not filing:

Reasons to File Your Taxes With No Income

Even if you’ve earned no income for the year, there are certain situations where you definitely need to file your taxes:

  • You owe taxes.
  • The CRA (Canada Revenue Agency) has requested that you file a tax return.
  • You received any CWB (Canada’s Worker Benefit) payments.
  • You sold any real estate or investment shares – whether or not you made a profit from them.
  • You had to repay any OAS (Old Age Security) or EI (Employment Insurance) benefits.
  • You used some of your RRSPs (Registered Retirement Savings Plan).
  • You contributed to CPP (Canada Pension Plan).
  • You paid any EI premiums on self-employment earnings.
  • You are splitting a pension income.

If any of these situations apply to you, you are still responsible for filing a tax return.

The Benefits of Filing a Tax Return With No Income

Smiling woman sitting in front of laptop looking at piece of paper.

Even if the above situations do not apply to you, there are benefits to filing a tax return even if you have no income to claim.

Federal and provincial benefits are tied to your tax return and your reported income (even if it’s zero) will determine which ones you are eligible for.

So before you decide to forego filing due to no income, consider these benefits you could miss out on:

GST/HST Credit

If you are eligible to receive the Good and Services Tax or Harmonized Sales Tax credit, you must file a tax return in order to receive these payments.

Canada Child Benefit

If you have children under the age of 18, you qualify for the Canada Child Benefit (CCB) – with the amount you receive depending on your children’s ages and your income.

The CCB can also include the Child Disability Benefit and any provincial programs you may be eligible for.

Not filing a tax return excludes you from these payments.

School Credits

If you attended a school, you can claim eligible tuition fees on your tax return. 

While you won’t receive any money back from them (they are a non-refundable credit), they must be reported for the current tax year in order for you to carry them forward or transfer them.

Otherwise, if you don’t file a return and claim them, you cannot use them on future tax returns.

Daycare Subsidies

If you have a child that attends daycare, you could be eligible for a daycare subsidy depending on your income.

The only way to apply for this program is to have a tax return stating your earnings since your eligibility is determined by your reported household income.

This also extends to subsidized sports and extra-curricular activities for your child.

Student Loans

Oftentimes, parents need to submit their reported income in order for their children to secure a student loan.

Since student loans are another needs-based program dependent on your income, it’s important that you have a tax return to include in the application process.

Assisted Living/Nursing Homes

For seniors looking for assisted living or nursing home accommodations, or those with a disability, the payment amount depends on affordability which is determined from reported income.

Without a tax return to prove earnings, seniors and those with disabilities will miss out on reduced payments for living arrangements.

How to File a Tax Return With No Income

When it comes to filing your taxes with no income to claim, the process is pretty simple: File as normal and don’t input an income.

However, the thought of paying someone to file taxes when you earned no income may seem redundant and inspire you to skip out on filing them.

Before you do, consider these options for filing your tax return for free:

These programs allow you to input your information and send your tax return directly to the CRA through NetFile.

Why are they free? Many of these software and tax companies offer free access to filing your tax return as long as the return is simple and straightforward – as would be the case if you are claiming no income.

Otherwise, more complicated tax returns require a fee to use the software.

Alternatively, you can also file your taxes the old-fashioned way by picking up the necessary forms and mailing your claim directly to the CRA.

To File Or Not To File?

That is the question. The simplified answer is that, if you earned no income and do not need to file, you don’t have to file.

However, it’s important to take the above-mentioned benefits into consideration. If you are eligible for these programs, why not take advantage of them?

Otherwise, if you are not sure if you should file your taxes or not without an income, you can always speak to our professional and knowledgeable accountants at Liu & Associates.

We can help guide you to making the best decisions when it comes to your tax claims as well as your financial health.

Let’s get in touch today!

2021 Tax Guide: How to Claim Your Home Office and Utilities

black woman in yellow shirt sitting at desk with laptop doing tax paperwork

Last year was an interesting one when it came to employment norms. People accustomed to commuting to an office or workplace every day were offered the opportunity to work from home.

Likewise, many people also decided to start their own businesses at home.

If you fall into either of these categories, your situation drastically changes the way in which you will file your 2020 taxes.

Instead of plugging in your T4’s and calling it a day, you now have to consider your home office expenses and what you can claim as deductions on your taxes.

The process is fairly straightforward and includes only a simple calculation to determine eligible deductions amount.

However, knowing what expenses you can claim can be a bit trickier.

Before we explore how to claim your home office and utilities, here is some information on whether or not you are eligible:

Are You Eligible to Claim Home Office Expenses?

Self-employed individuals and employees who worked from home more than 50% (over a period of at least four weeks) due to the pandemic can claim home office expenses.

These expenses range from office supplies to internet services and rent/mortgage.

Not all work-from-home jobs are created equal. For instance, if you work for yourself you can claim more deductions than someone who is employed and working from home.

What you can claim as an employee may seem convoluted since the CRA has implemented new regulations to accommodate the increase in work-from-home individuals due to COVID-19.

If you need clarification about what you are eligible to claim as an employee or self-employed individual, feel free to contact our team of knowledgeable accountants for more information.

Claiming Home Office Expenses: Self-Employed

For those who are self-employed, you can claim your home office if your workspace is your main place of business or is used to regularly meet with clients, customers or patients.

By comparing the space of your home office to the space of your home to calculate a percentage, you can claim a portion of your household expenses.

For example, if your home office is 200 square feet and your home is 2500 square feet, you would divide the office by the home and get a percentage of 8%. That means you can claim 8% of your household expenses.

These expenses include:

  • Telephone
  • Utilities (heat, electricity, water, etc.)
  • Internet
  • Rent/Mortgage
  • Property taxes
  • Maintenance and repairs
  • Insurance
  • Mortgage interest

You can also deduct expenses related to your home office such as office supplies (pens, pencils, ink, etc.).

Be sure not to deduct equipment such as chairs, desks and computers – these are considered capital expenses.

Claiming Home Office Expenses: Employed

Computer programmer writing program code on computer in home office

When you are working at home as an employee, you can only claim your home office if you use your home office exclusively for work or you use the space to complete more than 50% of your work.

In order to qualify as an employee, your employer must require you to maintain a home office as part of your contract of employment.

Also, you cannot claim any expenses that have been reimbursed by your employer.

Lastly, your employer must fill out and sign form T2200 (Declaration of Conditions of Employment).

Once you determine that you do qualify to claim your home office as an employee, you can calculate your claim percentage:

Divide the square footage of your office space by the square footage of your home.

You can use this percentage to determine the portion of your home expenses and utilities that you can claim on your taxes.

These expenses include:

  • Telephone
  • Utilities (heat, electricity, water, etc.)
  • Internet
  • Rent/Mortgage
  • Property taxes
  • Maintenance and repairs

Unlike self-employed individuals, employed workers cannot claim mortgage interest or insurances.

Instead of calculating your home office expenses, the CRA has introduced a new “temporary flat rate method” which allows you to claim $2 per day that you worked at home up to a maximum of $400.

These days only include days worked and not vacation, sick or absent days.

This method is preferred if you only worked from home temporarily.

Otherwise, if you feel you are eligible for more than $400 in deductions, you’ll want to use the percentage mentioned above to calculate your claims.

Common Mistakes When Claiming Home Office Expenses

You have to be very careful when claiming home office expenses so that you don’t trigger an audit by the CRA.

Don’t make the mistake of claiming full expenses related to your home. You need to calculate the percentage and only claim the appropriate portion.

Also, when claiming repairs and maintenance, these costs only apply to your home office. You cannot claim repairs made to other areas of your home.

Be vigilant when claiming your home office expenses. Rounding up the costs can prompt the CRA to take a closer look at your tax return.

You should also break down your home office into different categories. Inputting large numbers in one category could also cause the CRA to question your return.

The CRA’s new “temporary flat method” eliminates the need to track expenses but if you need to calculate the percentage of your space to maximize your return, it’s best to hang on to your receipts.

By following the above tips, you can safely claim your home office and utilities without worrying about facing an audit.

Let Us Help You With Your Tax Return!

To better protect yourself against a CRA audit, why not let the experts take care of your tax return?

Our team at Liu & Associates can ensure that your taxes are filed properly while including all eligible deductions to maximize your return.

There are definitely financial perks to working from home – and we want to help you explore them all!

Let’s chat today!

2021 Tax Guide: Keeping Track of your Receipts

person sitting on hardwood floor amongst tax paperwork

The COVID-19 pandemic certainly threw the way we work into a tailspin as more and more employees found themselves working from home.

Thankfully, many individuals were able to take advantage of this situation and continue working in a safe environment.

However, this massive shift will change the way in which 2020 taxes will be filed this year. Mainly, individuals are now eligible to claim home office expenses if they were able to work from home.

If you are one of these people, you are probably wondering what exactly you need to provide to the CRA to make this happen. 

Depending on the way in which you choose to file your work-from-home taxes, you may be required to hang on to receipts related to home office expenses and purchases.

Before you start digging around for crumpled up receipts, here’s some information on who is eligible for home office expense claims and what claims you are eligible for:

Am I Eligible to Claim Home Office Expenses?

If you worked from home because of the pandemic more than 50% of the time over a period of at least four consecutive weeks, you can claim home office expenses.

However, if you were reimbursed by your employer for any home office expenses, these cannot be claimed.

For example, if your employer paid for your computer, desk and chair, these purchases cannot be claimed on your taxes.

Any purchases out of your pocket, as well as the space in your home you use to work, can be claimed on your 2020 taxes.

In order to make these claims, there are two methods of filing you can choose from:

Two Simple Ways to File Your Taxes

woman fills out tax form using pen and calculator

Previous to the pandemic, those who worked from home had to calculate their expenses and home office space in order to claim deductions on their taxes.

Thankfully, the CRA has introduced a simplified method for those who had to work from home during 2020.

Keep reading to find out the methods available for home office claims to determine which best suits your situation:

Temporary Flat-Rate Method

For the 2020 tax year, the CRA has introduced a temporary flat-rate method to streamline the way in which you claim your work-from-home expenses.

The flat rate is $2 for each day you worked at home because of the pandemic (from March 2020 to December 2020) to a maximum of $400.

These days can be either full-time or part-time days and do not have to be consecutive – although vacation days, sick days and days off do not count in your calculations.

If you choose the temporary flat-rate method, you simply need to claim the amount and submit the T777S form (statement of employment expenses). 

You also do not have to keep receipts, calculate the workspace allotment in your home or have any forms signed by your employer. 

However, you cannot claim any other employment expenses. So, if you feel your expenses will amount to more than $400, you can go with the detailed method of filing your 2020 taxes.

Detailed Method

This is a more involved process but necessary if you feel you are entitled to more than $400 in work-from-home expense deductibles.

When you choose the detailed method, you have to fill out the T777S and have form T2200S signed by your employer. 

You will also need to keep all of your receipts as well as calculate the percentage of your home used for work. This means figuring out the square footage of your office space and dividing it by the square footage of your home.

When you figure out the percentage, you will use that number to determine how much of your rent, utilities, etc. you can claim.

As an employee, you are eligible to claim a portion of your hydro, rent, heat, internet and cell phone minutes. If you work on commission, you can claim a percentage of your home insurance and property taxes. As a self-employed individual, you can claim your mortgage interest, mortgage payments, internet, furniture and capital expenses.

Not sure what you can claim? Get in touch with one of our expert accountants to discuss what deductions you are eligible for and what information you will need to submit to the CRA.

How to Keep Track of Your Receipts

With the detailed method of claiming your home office expenses, you may be required to produce receipts for purchases and services that you have paid for – especially if you end up facing an audit.

Luckily, you are probably not going to be faced with piles of receipts that need to be organized as you would if you owned your own business.

However, instead of shoving these slips of paper in a random drawer, here are some ways that you can keep track of your receipts for your home office expenses:

  • Make notes on your receipts. To keep your receipts organized, make a note on them to indicate whether they are for supplies or if they need to be calculated by percentage.
  • Go paperless. There are many apps and programs out there that will help you input and organize your receipts electronically. You can also take a picture of your receipt on your phone and keep track of it that way.
  • Establish a holding station for your receipts. When you bring a receipt home, you’re probably going to toss it aside and deal with it later. Grab a jar or envelope as a holding station for your receipts until you get around to organizing them.

You can also create a Google Spreadsheet to track your expenses month to month. That way, when it’s time to file your taxes, you have all of the amounts available and can compare your receipts to what you spent.

Ready to File Your Taxes?

If you’re new to filing taxes as a work-from-home employee, the process can be a little confusing.

Let our team of accountants guide you through your 2020 taxes! We are ready and happy to help you get the most out of your tax return.

Let’s chat today!

2021 Tax Guide: First Year Working from Home? What to Know

man with beard and glasses wearing denim shirt sitting a grey couch doing his taxes on his laptop

2020 proved to be an interesting and evolving time as more and more employees worked from home.

When you are no longer working in your company’s workspace, the way in which your file your taxes changes drastically.

If you worked from home during 2020, you may be eligible to make work-related claims and take advantage of additional deductibles on your taxes.

To understand whether you are eligible to claim your home offices expenses, and what you can claim on your 2020 taxes, keep reading our tax guide to your first year working from home:

Who Can Claim Home Office Expenses?

Employees who worked from home more than 50% of the time over a period of at least four consecutive weeks due to COVID-19 can claim home office expenses.

This applies to 2020 only.

Instead of tracking expenses and having your employer certify your requirement to work from home, the CRA has simplified this method by offering a temporary flat rate of $2 per day for each day at home – to a maximum of $400.

This eliminates the need for an employer to sign the T2200 or T2200S slips.

To calculate your workdays, you must use the days that you worked full-time or part-time, not vacation days, sick days or other days off.

But if your employer has reimbursed you for all your home office expenses, you cannot claim these on your taxes.

What Expenses Can Be Claimed?

If you are eligible to claim expenses for working from home, what you can claim depends on the type of income you earn.

The type of work is divided into three categories: Employment, Commission and Self-Employment.

This table will help you understand what you are eligible to claim:

Employment Commission Self-Employed
Heat
Electricity
Phone
Internet
Rent
Repairs/Maintenance
Mortgage Interest
Property Tax
Insurance
Capital Cost Allowance
Water, Security, Etc.

For more information on what is considered capital cost allowance, and what repairs and maintenance, are eligible for deductions, get in touch with our expert accountants today!

How to Calculate Your Home Office Portion of Expenses

man sits in home office while working on computer

Once you know what you are eligible to claim while working from home, you need to figure out what percentage of these costs relate to your home office – you cannot claim the entire amount.

This is done by considering the percentage of time you use your home office space for work as well as the proportion of your home used for the workspace.

The CRA determines this on a “reasonable basis”, meaning that they take the square footage of your home office and divide it by the total square footage of your home.

If you use a common space, such as a kitchen or dining area, you can claim your home office based on the number of hours your space is used for work.

Because many people worked both from home and at work, these situations may require you to prorate your expenses based on the number of months out of twelve in which you worked from home.

Other Deductible Expenses

When claiming your home office space on your 2020 taxes, don’t forget that you can also include other deductible expenses such as supplies that are necessary for doing your job.

These supplies can include pens, pencils, file folders and ink cartridges, for example.

Also, if you use your personal phone to make business calls, you can also claim long-distance charges and minutes used on your cell phone (if these incur additional charges on your bill).

However, this doesn’t mean you can simply buy supplies just to save money on your taxes!

There has to be an understanding between you and your employer that you were required to purchase these items in order to fulfill your employment duties.

Employer Allowances and Reimbursements

Any allowances received for your home office expenses from your employer are considered to be a taxable employee benefit and should be included in your income on your T4 or T4A slips.

However, direct reimbursements made by your employer do not need to be included in your income – except in the case where there is a potential for personal use of the expense. The portion related to personal use is then included in your income as a taxable benefit.

For example, if your employer gives you the money to purchase a computer for work, that amount is considered to be taxable income.

(Except in the case of computers, the CRA has implemented a new exception that allows you to claim a $500 reimbursement if the equipment was purchased during the pandemic for work).

Alternatively, if your employer has you purchase a computer and then reimburses you for it afterward, this is not considered taxable income.

In the case of personal use, if your employer gives you a cell phone, but you are allowed to use it personally after hours, you would have to consider the time the phone is used personally and claim that percentage on your taxes.

Don’t Miss an Opportunity to Save on Your Taxes!

While we certainly don’t recommend you make claims on your 2020 taxes beyond what you are eligible for, there is definitely an opportunity to save on your taxes when you work from home.

To gain a more thorough understanding of the claims you can make on your taxes related to having a home office, we recommend speaking to a knowledgeable accountant.

Our team at Liu & Associates is more than happy to help you navigate your taxes after your first year of working from home.

Let’s talk today!

Will My Small Business Taxes Affect My Personal Taxes?

Man and woman in business attire sit in front of laptop computer

A common question among small business owners is “How will my business’ taxes affect my personal tax’s, and vice versa?”. While owning a small business does not exempt you from paying personal tax, the type of business structure you choose will have an effect on your business taxes. Read on to learn about some of the most common business structures, and how they impact both your personal and business taxes.

Sole Proprietorship

Running your business as a sole proprietorship means that you are your business. Your company has no legal identity separate from yourself. In the eyes of the government, a sole proprietorship does not exist as a taxable entity. Instead, the CRA deals with you directly. In a sole proprietorship, all company profit is to be reported as personal income.

Pros

  • You do not pay federal business income tax

Cons

  • Because you’re reporting all income as personal, you’ll be paying twice the usual amount of self-employment taxes
  • There are some liability risks that are associated with sole proprietorships

Incorporated Businesses

When you incorporate your business, you add on a layer of protection against liabilities and debts resulting from the operation of your business; however, it also adds on a layer of taxes. In an incorporated business, you have to pay taxes on any profits that your company makes. While this business structure is usually only considered by larger companies, if your business is a fast growing start-up, setting up your business as a corporation may be a good idea.

Pros

  • Company has a separate identity from yourself as the owner.
  • Liability and debt protection

Cons

  • Have to pay business income tax

Limited Liability Company

A limited liability company (LLC) allows you to receive many of the benefits of being a corporation when it comes to protecting your personal assets, while still allowing you to claim all business profit as personal income. Similar to a sole proprietorship, you and your company are considered to be the same entity. LLC’s are one of the most common business structures for small businesses.

Pros

  • Some financial and legal protections
  • Do not have to pay business income tax

Cons

  • Since you’ll be claiming all income as personal, you will be paying extra self-employment tax

Questions? Call Liu & Associates

If you are a small business owner with questions about business and personal tax, give the team at Liu & Associates a call! Our expert accountants can help make sure that you are setting yourself, and your business, up for success.

Tax Implications of the Canadian Emergency Wage Subsidy (CEWS)

The COVID-19 pandemic took the world by storm and placed many businesses, especially small ones, in a precarious position of losing revenue and long-term closures. Luckily, in Canada, the government stepped in and offered the CEWS in order to help businesses keep their heads above water.

Now that these relief programs are in full swing, many individuals and business owners are wondering how this benefit money is going to affect their 2020 income tax return. The simple answer for business owners is: The CEWS is taxable income. When it comes to filing time, this money will be included in your business’ income. However, there is more to claiming the CEWS than simply including it in your taxes.

Read on to learn what the CEWS is, how it will affect your return and what to do if your business is audited in relation to this wage subsidy:

What is the CEWS?

In order to help businesses during the COVID-19 shutdown in 2020, the Canadian government offered the Canadian Emergency Wage Subsidy (CEWS) to help cover part of their employee’s wages due to drops in business revenue.

The subsidy was designed to help employers re-hire workers, prevent further job loss and ease their business back into normal operations.

The CEWS was available to taxable corporations such as individuals, non-profits, registered charities and other eligible entities and was provided over a 12 week period, divided into three qualifying periods.

Is the CEWS Taxable?

The CEWS, as a wage subsidy, is considered to be government assistance and therefore must be included in the employer’s taxable income.

The amount of CEWS received by an employer for a qualifying period will be included in the employer’s income. 

Employers will be entitled to a deduction for the amount of remuneration paid to employees but the amount of CEWS received will reduce any remuneration expenses eligible for tax credits calculated on the same remuneration.

Eligible remuneration for the CEWS includes salary, wages, fees, commissions and other remuneration such as taxable benefits – basically, anything subject to income tax withholdings.

However, this excludes retiring allowances and stock option benefits.

Claiming the CEWS on Your Income Tax Return

When it comes to the wage subsidy, there are no special withholding requirements on behalf of the employer.

All amounts paid to employees through the CEWS are considered regular employment income that is subject to regular withholdings such as income tax, CPP (Canada Pension Plan) contributions and Employment Insurance Premiums.

To accommodate for government relief programs during the COVID-19 pandemic, the Canada Revenue Agency (CRA) has published new T4 reporting requirements for the 2020 tax year.

The CRA will be using a new code system to identify employment income made to eligible employees during particular CEWS periods.

Therefore, employers will be required to provide additional information in order to help the CRA validate payments under the CEWS, CERB (Canada Emergency Wage Subsidy) and the CESB (Canada Emergency Student Benefit).

This information, in addition to reporting regular employment income in Box 14/Code 71, employers will need to use these new codes in the “Other Information” section at the bottom of the T4 slip according to the period in which they apply:

  • T4 Code 57 – Periods 1 and 2 – March 15 to May 9, 2020
  • T4 Code 58 – Periods 3 and 4 – May 10 to July 4, 2020
  • T4 Code 59 – Periods 5 and 6 – July 5 to August 29, 2020
  • T4 Code 60 – Period 7 – August 30 to September 26, 2020

The CRA may release new codes to cover the additional periods in the extended CEWS program.

These new T4 requirements apply to all employers, not just those who collected the CEWS.

When it comes time to prepare your 2020 taxes for your business, Liu & Associates will be available to help you navigate this new filing process.

Contact Our Team

Preparing for a CEWS Audit

Beginning in September of 2020, the CRA began issuing audit request letters to businesses who had been claiming the CEWS.

Their intent with these audits was to identify the types and levels of non-compliance in preparation for larger-scale audits.

When performing a CEWS audit, the government is looking to make sure the relief benefits went to companies that were eligible for them.

These “mini-audits” required that companies provide the government with pertinent information within a timeline of 10 days.

While larger-scale audits may end up operating differently, it is worth it for you (and your business) to always have the following information ready and available:

  • Documents from the employer’s minute books (i.e., anything related to the CEWS claim).
  • 2019 tax information (revenues, general ledger, revenue journal entries).
  • 2020 tax information (same as above)
  • Information used to compute the CEWS revenue decline percentages.
  • General payroll information (source deductions, contracts, proofs of payment, etc.).
  • Information related to other subsidies/government programs (i.e., Temporary Wage Subsidy).
  • A signed copy of the CEWS Attestation Form.
  • Documents that support any exceptions or elections utilized for CEWS.
  • Remuneration exclusions.
  • Qualifying revenue exclusions.

These requirements can be complex and extensive and failure to provide full compliance can result in a “gross negligence penalty” – which can be up to 50% of the difference between the amount of CEWS claimed and the amount of CEWS entitled.

If your business does receive an audit letter in relation to the CEWS, it is highly recommended that you consult an expert accountant to help you identify and organize CEWS calculations, claims and filing processes.

To get more information on how to handle a CEWS audit, please contact our expert accountants at Liu & Associates.

Don’t Leave Anything to Chance

While the CEWS was a life-saver for many businesses, it is certainly going to cause some challenges and confusion at tax time.

Don’t leave the health of your business to chance! It is recommended that you consult with a tax expert to ensure that your taxes, especially in relation to employee remuneration, are filled out properly and accurately.

Feel free to contact Liu & Associates with any questions you may have!

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