Face your pandemic-year tax chores quickly — it can pay off
Take a deep breath. The vast majority of Canadians are still expected to receive a refund after filing their taxes, despite the taxable pandemic benefits.
If those last three words caught you off guard, sorry for the letdown. All the government benefits that were dished out in 2020 are taxable, for individuals and businesses. Getting organized early will actually reduce stress, ensure you don’t miss any valuable credits and deductions, and help you see whether you owe money or not (and both from a financial and mental wellness perspective, knowing is better than not knowing).
Use a digital or physical filing system for your paperwork
Check your email inbox, physical mailbox, intranet HR portal at work and document portals from your financial institution(s). In the next few weeks you should see an influx of your tax documents; specifically your T-slips like T4s or T5s, RRSP receipts and more. If you received CERB or EI income, you’ll receive a T4A and/or T4E tax slip, respectively — but don’t stop your search for documents here.
If you made charitable contributions, moved, took courses, had expenses related to an investment property, paid student-loan interest or union dues, had professional expenses to maintain your licence(s), own a home-based business, spent money on child care, incurred medical costs or made improvements to your work-from-home setup, gather up these receipts, too. All of these may yield deductible expenses on your return; you can check out the criteria on the Canada Revenue Agency website. (It’s also a good idea to check your province’s website about any unique provincial credits that may be applicable.)
Next, organize the paperwork in either a physical file or a secure digital cloud. As more forms arrive, file them away so that you don’t end up with a massive stack that your cute new pandemic puppy decides to make her new chew toy.
Here are a few tips to help you identify if you’re missing something
Technically most of your slips (including your T4, T4A, and T5 slips) and receipts have until the end of February to be issued. T3 and T5013 slips do not have to be sent before the end of March. So this may be a waiting game.
The easiest way to see if you’ve forgotten something or haven’t yet received it is to cross reference your previous two years’ worth of returns. The other great way to see if you’re missing forms is logging into CRA My Account. Tax slips that have been filed under your Social Insurance Number are also located in here. This portal is also where you’ll receive your digital Notice of Assessment (NOA) as soon as your taxes are completed and reviewed by CRA. The NOA tells you how much you’re getting back or will owe. I recommend downloading your NOA and adding it to your digital or physical filing system when it’s ready.
Finally, if you had multiple employers, expect multiple T4s. Even companies that didn’t survive the pandemic and went bankrupt are still obligated to provide these to you.
Life changes impact your taxes, too
H&R Block summarized it best this season — “major changes in lifestyle also equal changes in taxes.” Here are just a few to consider when getting organized to file.
Did you become a new parent? You might qualify for the Canada child benefit, the one-time top-up during the pandemic, the eligible dependent amount, the Canada caregiver amount, or the child-care expense deductions — and every parent can contribute to Registered Education Savings Plans and receive up to the maximum Canada Education Savings Grant.
Did you tie the knot? I did! Tax credits are calculated based on your total household income instead of individual income. So if you haven’t talked about money with your honey yet, this will force the conversation to happen, because you have to work together! If you supported your spouse throughout the year, you might also qualify for spousal transfers or the spousal amount.
Did you buy a home? You could qualify for the first-time homebuyer’s amount, the homebuyer’s plan and the GST/HST new housing rebate.
There are many more life changes that can impact your taxes, such as starting a business, becoming ill, or losing a spouse or parent. When in doubt, consult with a tax professional about what this means to your taxes.
What if you owe money?
At the front end of the pandemic financial aid, there was a pile of confusion amongst Canadians and within CRA that led to thousands of Canadians taking benefits that perhaps they didn’t qualify for. If you are one of these people, the CRA is flexible about repayments’ size and timing — but you do have to pay it back, and probably already spent the money.
Experts still believe the bulk of Canadians should get a refund, but if you end up owing money, the first step is to figure out how much you owe, then craft up a plan to get it paid. This may mean negotiating terms with the CRA, using up savings to pay the some or all of the balance, and in certain cases, dipping into a line of credit if you have no other options. Still, before you do that, see if you can raise the money instead by taking on extra shifts at work (if available) or selling items you don’t need like bicycles or the second car you’re not using.
Paying taxes has to be done. But, it doesn’t need to be painful. Start now to get organized, file on time, and get clear about if you owe, so that you can get a game plan together to pay it off.
This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.