Year End Checklist - 2020 (Employees and Individuals)
It is that tiime of year again, 2020 is turning to 2021, and I don't think people have ever been so excited to see a new year. Here are some things to consider as we turn the page on 2020.
EMPLOYEES AND INDIVIDUALS
1. If in 2021 you are expecting a significant income drop, consider timing your income by taking a bonus in 2021 opposed to 2020. If your income is low in 2020 and you expect an increase in 2021, consider taking the bonus in 2020.
2. If you have a loan from your employer (due to your role as an employee opposed to a shareholder), ensure you make a payment of the interest by January 30, 2021 to avoid needing to include the interest benefit on your T4.
3. If your employer provides you with stock options, check if they will be impacted by the new rules which come in to play after June 2021 which may limit the tax advantages of being paid with stock options.
4. Employees with employer-provided vehicles should consider ways to reduce their operating cost benefit and/or standby charge benefit. To reduce the operating cost benefit, employees can: reimburse the employer for some/all of the personal-use portion of the operating costs if business use of the vehicle is less than 50% and/or reduce personal use to less than 50% of total use. To reduce the standby charge benefit, employees can: reduce the number of days the car is available to them and/or decrease their personal use of the vehicle.
5. Teachers and early childhood educators should consider purchasing eligible school supplies before the end of 2020, in order to claim the eligible educator school supply tax credit for 2020.
6. NEW - Employees who have been working from home in 2020 due to COVID-19 can choose to: 1) deduct up to $400 (based on a per diem amount for the number of days working from home), with no requirement to track or report detailed expenses or obtain a signed Form T2200; or 2) use their records and receipts to calculate their actual home office expenses and obtain a signed Form T2200 from their employer. Accordingly, employees should ask their employer to consider issuing a Form T2200 and gather records and receipts for work space expenses (i.e., utility bills, maintenance receipts and receipts for eligible home office supplies) to determine which option will be more beneficial in their circumstances.
7. Individuals who moved to be closer to work in 2020 may be able to deduct eligible moving expenses for tax purposes. If you are moving to a province or territory with a lower tax rate should consider moving before year-end, and conversely, individuals who are moving to a province or territory with a higher tax rate should consider delaying the move until early 2021.
8. Consider paying for home renovation expenses before the end of 2020 that allow seniors and those eligible for the disability tax credit to gain access to, or to be mobile or functional within the home, or that reduce the reduce the risk of harm to the senior or disabled individual within the home, in order to claim the home accessibility tax credit (HATC) for 2020 (equal to 15% of up to $10,000 of expenses per year).
9. Ensure that the following expenses are paid by December 31, 2020 to claim a tax deduction or credit for 2020: adoption expenses, child care expenses, investment counsel fees, deductible accounting and legal fees, medical expenses, political contributions, union and professional membership dues, spousal support payments, tuition fees and interest on student loans. Consider accelerating any early 2021 payments into 2020.
10. Make charitable donations by December 31, 2020 to get a tax receipt and claim a donation tax credit for 2020. Individuals who own publicly-traded securities (including mutual funds and segregated funds) with accrued capital gains should consider donating them to a registered charity or foundation since capital gains realized on gifts of publicly-traded securities are not subject to tax.
11. Individuals with medical expenses should gather their medical receipts and consider claiming the medical expense tax credit (METC) where total family medical expenses are in excess of: the lesser of 3% of net income or $2,397. Since the METC may be claimed for eligible medical expenses paid during any 12-month period that ended in 2020, individuals should also consider any unclaimed medical expenses paid in 2018 when determining eligibility for the METC.
12. Make RRSP contributions as early as possible to maximize tax-deferred growth. The deadline for making tax-deductible RRSP contributions for 2020 is March 1, 2021. The RRSP contribution limit for 2020 is 18% of 2019 earned income, to a maximum contribution of $27,830 less any pension adjustment (plus any unused RRSP carry forward room). Also consider making contributions to a spousal RRSP before March 1, 2021. If you are unsure of your RRSP room, please check with the CRA or you can email our firm.
13. Consider making RESP contributions for a child or grandchild before December 31, 2020. We recommend you contribute $2,500 per child per year to maximize the canada education savings grant of the lower of $500 or 20% of your contribution.
14. Beginning in 2020, eligible workers ages 25 to 65 who are enrolled at an eligible educational institution may be able to claim a Canada training credit on tuition and fees associated with training. The credit accumulates at a rate of $250/year, up to a lifetime training amount limit of $5,000.
15. Certain information regarding the sale of a principal residence must be disclosed and reported on an individual’s personal tax return. Failure to disclose and report the sale of a principal residence may result in the loss of the principal residence exemption on any capital gain that arises from the sale. Accordingly, individuals who sold their principal residence during 2020 should gather any documents related to the sale to prepare for the reporting requirement.
16. Individuals with family trusts should begin gathering information for the new trust reporting requirements, applicable to taxation years that end on or after December 31, 2021, even if the trust has no income and no activity. These additional reporting requirements include the name, address, date of birth, jurisdiction of residence and taxpayer identification number (e.g., SIN) of the settlor, trustees, beneficiaries (including contingent beneficiaries) and protector.
1. Seniors whose income is too high to receive OAS benefits should consider ways to reduce or defer income. Seniors should consider the feasibility of deferring the start of their OAS benefits for up to 60 months after age 65, which will increase the monthly payment by 0.6% for every month of deferral.
2. Seniors ages 60 to 70 who have not started collecting CPP payments should determine the best time to start receiving them. Benefits are reduced if you start before age 65 and increased if you start after age 65. For some it may be beneficial to begin CPP at the age of 60 due to health requirements.
3. Alter-Ego and Joint Spousal trusts may be set up by seniors over age 64 who live in a province with high probate fees (ie. BC) should consider establishing an inter vivos trust as part of their estate plan.
4. Seniors who turn 71 in 2020 should convert their RRSP to a RRIF, life income fund or registered annuity before year-end to defer taxes on the RRSP income. In the year after a RRIF is established, and each year following, there is a requirement to take a minimum amount out of the RRIF. However, for 2020, the government has reduced the minimum required annual withdrawal payments from RRIFs by 25%. As a result, seniors may want to consider withdrawing less from their RRIF in 2020 where it makes sense to do so.
5. Seniors who have a younger spouse can continue making RRSP contributions to a spousal RRSP until the year that the spouse turns age 71.
Note - thank you to Thomson Reuters for support on this post.