Newsletter February 2021
Year 2021 has arrived, a year of hope. Hope that everything will end and end well, or at least better. But it is already February and amidst our hope is the time to start paying taxes. February 22nd is the official day to begin submitting tax declaration. This is what I would like to discuss today.
1. Taxes for 2020. What you need to know about taxes on government support (CERB and others) during the pandemic and submission of your tax declaration.
2. Relief for ineligible self-employed CERB recipients who already received money.
3. RRSP – effective way to reduce taxes which can be very useful this year. Or maybe it is better to open TFSA? Both programs include a fund that showed a return of 45% in the year 2020.
4. Mortgage and interest rate – what is the situation today with rates and what to expect over the next few years.
5. Private Mortgages (First and Second) for those who want to invest and those who need access to additional funds.
Now in more details on these subjects:
1. Taxes for 2020. What you need to know about taxes on government support (CERB and others) during the pandemic and submission of your tax declaration.
This will not be an easy tax season, there were so much that did not exist/happen before. Huge financial support for people, work from home and loss of work for some… On February 6th, 2021, National Post article “Taxes in the age of COVID-19 listed some main points that are important to remember when submitting your taxes. I would like to go over them:
- Deadline to file your income tax. Even though experts are requesting extensions to filing deadlines like last year, for now the dates to submit taxes remain the same, as usual, April 30th. Self-employed taxpayers (and their spouses or partners) have until June 15th. The article reminds that if you did not file your income taxes before deadline, CRA (Canada Revenue Agency) will add a 5% penalty on the amount payable. On top of that, there will be an additional penalty of 1% per month on the amount not paid in time, until April 30th.
- Most government support will be taxable and should be reported on Line 13000 – Other Income (CERB, CESB, CRB, CRSB).
- By mail you will receive a statement T-4A on benefits from CRA and T-4E from Service Canada (pension questions) with information, necessary to complete tax filing.
- These documents should arrive to you before March 10th, do not miss them. It is recommended to use the online CRA account – My Account.
- Benefits such as one time payments of $300 from OAS pension, $200 from GIS (social assistance) and one time payments of GST/HST are tax-free and should not be reported on the 2020 return.
- It has to be considered that you may owe some tax on your 2020 COVID benefits, depending on your situation. When you receive income from employment, the taxes are withheld at the moment of pay, with benefits (CERB and CESB) no tax was withheld when the payments were issued. 10 % tax was taken, when receiving CRB, CRSB and CRCB, but this may not be sufficient.
- If net income for 2020 was over $38,000 and CRB (Canada Recovery Benefit) was received, you may have to repay 50% of the amount received from the government.
- If you worked from home and incurred expenses that were not compensated by your employer, you may claim these amounts as business expenses and reduce taxes.
There are two options:
First option is temporary ability to reduce income without documents to prove it. You would have to use form T777S to calculate expenses, where you will claim $2 for each day that you worked from home, for up to 200 working days per year. In total that would be $400, that can be written off.
Second option is Detailed Method. For this method you would have to been working from home for more than 50% of the time and at least 4 consecutive weeks in year 2020. You would have to fill out form T2200(S) – Declaration of Conditions of Employment from your employer. You would be able to write off portion of your rent, electricity, heat, water, internet, maintenance and minor upgrades.
Those working for commission, can also write off a portion of home insurance, property taxes, phone expenses, computer, lap top, fax, which of course were used for work.
Nobody is eligible to write off even a small portion of the mortgage interest, capital expenses or Capital Cost Allowance.
You have to carefully calculate in your expense only the portion of your house that is relevant to the job you perform (portion of area used for work in relation to total area of your house, including all livable areas – kitchen, washrooms, hallways, etc.)
CRA created a calculator online to assist with calculating expenses for working from home
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-229-other-employment-expenses/work-space-home-expenses/calculate-expenses.html.
Interesting addition was introduced to calculating taxes for year 2020.
If a person had an income of less than $150,473 per year, their non-taxable amount of earnings (Basic Personal Amount – BPA) was increased by $1,000. Instead of the original $12,229 during filing, the amount that will not be taxed for the year 2020
has now changed to $13,229.
2. Relief for ineligible self-employed CERB recipients who already received money.
“Relief coming for ineligible self-employed CERB recipients” – this was the title in the National Post on February 9th, 2021. The article says that the individuals that misunderstood the CRA information in March 2020 regarding income for 2019 and received CERB of $2,000 per month despite not meeting net income eligibility criteria will not be forced to repay the money. CRA admitted that in the first few weeks of implementation of the program the explanation may have been unclear about CERB eligibility and may have confused self-employed individuals.
The ineligible self-employed recipients who have already repaid some or all of the amount received, will most likely be able to contact CRA to reclaim it once again
3. RRSP – effective way to reduce taxes. Can be very useful this year. Or maybe it is better to open TFSA?
Both programs include a fund that showed a return of 45% in the year 2020.
Now is the time to calculate taxes and invest into pension program to reduce those taxes, we can assist you with that.
But it may be more beneficial for you to invest money into TFSA.
Not knowing details it is hard to say what would be more suitable specifically for you – RRSP or TFSA, but with both of these programs we can offer an investment into a very interesting fund, that earned 33% higher than the index (market).
45% growth in year 2020 – 36% higher than the average fund with the same risk category.
This fund belongs to the Medium Risk Profile Mutual Funds.
We are always ready to offer you interesting options.
If you want to still get 2% annual interest for the next few months on new contributions into TFSA, please contact our office. Natasha can organize it all for you.
4. Mortgage and interest rate – what is the situation today with rates and what to expect over the next few years.
Interest rate on mortgages have been very low for quite some time.
In the near future it should remain the same. Prime Rate is not very likely to increase in 2021 or 2022, as per many experts’ opinion. But still, it will likely start increasing at some point in time. Many have already re-done their mortgages with high percent to lower fixed rates. We are ready to analyze your situation with you, but we have to have this discussion once you find out what you penalties will be for breaking your current contract.
Considering that the rates are low right now, in the short term, they may go up slightly. It is best to secure the best rate 4 months prior to your renewal and then wait until the end of your contract. If in that time the rate decreases, you will automatically receive a lower rate, if it increases, you win.
Read the following section on our website Manage Your Mortgage.
5. Private Mortgages (First and Second) for those who want to invest and those who need access to additional funds.
Sometimes people require financial assistance for a short period of time. If a person has a property and there is equity in the property, for a short period of time a necessary sum can be borrowed at a reasonable rate. We are likely able to help you with that.
At the same time, many have secured lines of credit that assist you with covering the main loan (mortgage) if you have one.
Let’s consider a family that has sold a property for $600,000 and put money in their account. There will be another purchase in half a year and the money will be needed then. As soon as the money goes into account, the person begins to think about how to make this money useful in the meantime. Where can it be allocated?
Similar picture exists even if you do not sell a property. The same $600,000 is in your equity in the form of a secured line of credit and this money is not earning anything. But it is possible to earn something if such opportunity is provided. Our office can offer you such opportunity.
Interest on the line of credit is around 3%, interest on private loan is 9%. The difference of 6% on a large amount can be a very good support for a family. All private loans are registered through a lawyer, with a Lien registered against the property, and the borrower cannot sell or refinance the property without returning the loan first. All expenses of arranging a private loan are taken on by the borrower.
We can always offer consultation on this topic.
We hope to hear from you or see you soon.
Our office is open 9 a.m. to 9 p.m. and Saturdays by appointment.
Serguei Totrov
Financial Advisor, CFP, CLU, EPC
Mortgage Broker, AMP
TOP – 75 Broker in Canada
in 2015, 2016, 2017, 2018, 2019
416-222-0533
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