It’s that time of year again where we all review our last year’s income, collect our tax information, and get ready for tax time! Last year was an unusual year for most people and there are a number of new tax items and government relief programs to be aware of. Here is your 2020 tax year-end checklist!
1. Get Your RRSP Contributions In!
You have 60 days from the start of 2021 to contribute to your registered retirement savings account (RRSP) and get a deduction for 2020. The deadline this year is March 1, 2021. If you had significant income in 2020, consider reducing the taxable amount by contributing to an RRSP. Most government relief programs are also based on net taxable income, so by contributing to an RRSP and reducing your taxable income, you may qualify for future government relief programs (see, for example, the BC relief cheque in part 5). You can find your contribution room available by looking at your 2019 notice of assessment or by logging into your CRA account.
2. Top Up Your Tax-Free Savings Account (TFSA)
If you were a tax resident of Canada last year, you will have earned another $6,000 of contribution room in your TFSA. Are you saving up for a big purchase or simply want access to saved up funds without taking a tax hit when you need it? That’s what the TFSA is for. Be aware; however, that the US does not recognize the TFSA account, so if you are a US citizen or green card holder and need to file US taxes, it is generally advised that you avoid having a TFSA account.
3. Collect all your tax slips, expense receipts, and donation receipts in one place
You will start receiving various tax slips – a T4 if you are employed, T5 and T3 slips if you have non-registered investment accounts or a private business paying dividends, and donation slips if you gave to registered charities through the year. If you received the Canadian Emergency Response Benefit (CERB) from the federal government this year, you would receive a tax slip for that as well. Because there was no tax deducted from CERB payments, you will likely have a significant amount of tax owing. Estimate how much tax you have owing and make sure you keep some savings to pay for it. Because it is no fun to be indebted to CRA.
4. Check which tax credits you may qualify for
In 2020, the government introduced a new flat tax credit for working at home. It is essentially $2 a day for each day you worked from home in 2020 up to a maximum of $400. If you spent more than that working from home, you can use the detailed claim method and have your employer sign T2200S and T777S to verify the claim. If you paid for professional development or education that your employer did not cover, you should receive an official tax receipt from the post-secondary institute or professional body that gave the course. If not, you are limited as to what you can claim as an eligible tuition expense.
5. BC Recovery Benefit
If you were a resident of BC before December 18, 2020, you may be eligible for one-time cheque from the BC government. This benefit is based on your 2019 tax return.
- $1,000 benefit for eligible families with a net income under $125,000. The benefit is reduced for eligible families with a net income of up to $175,000
- $500 benefit for an individual with a net income under $62,500. The benefit is reduced for eligible individuals with a net income of up to $87,500.You will need to apply online and provide your net income from your 2019 Notice of Assessment. When you receive your payment, consider saving it in your RRSP or TFSA and put it to work.
If any of the above suggestions score you a refund on your taxes, consider putting that refund into your emergency savings or TFSA. And if you would like to plan ahead instead of being in a reactive mode when tax season rolls around, talk to your ZLC Advisor about systematic savings.
Disclaimer: This article has been prepared for use by ZLC Financial. The strategies, advice and technical content in this publication are provided for the general guidance and benefit of our clients, based on information believed to be accurate and complete, but we cannot guarantee its accuracy or completeness. This publication is not intended as nor does it constitute tax or legal advice. Readers should consult a qualified legal, tax or other professional advisor when planning to implement a strategy. This will ensure that their individual circumstances have been considered properly and that action is taken on the latest available information. Interest rates, market conditions, tax rules, and other investment factors are subject to change. This information is not investment advice and should only be used in conjunction with a discussion with a ZLC Financial Associate. Neither the firm nor the author of this publication accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or the information contained herein.