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As taxpayers scramble to collect tax slips and accountants brace for a busy tax season, keeping up with tax changes can help advisors maintain a central role in their clients’ financial lives.
“We work as a team, but there are certain areas in which financial planners really can provide a lot of value for their clients without having to send them directly to an accountant and increase their fees,” says Liam Bordeleau, associate partner, business tax advisory, at Ernst & Young LLP in Ottawa.
“Being aware of [tax] changes allows them to really be that one-stop advisor, from a financial standpoint, for their clients,” he adds.
Advisors can help clients by tracking which government programs they accessed during the pandemic and remind them to include any associated taxable income on their tax returns.
One rule tweak in 2021 provides more flexibility in when clients can claim deductions for repayments of COVID-19 benefits, which may happen if they discovered that they weren’t eligible for them after the fact. Under the original rules, income received through these benefits was included in that year’s income, and repayments were deducted in the year of the repayment.
“You had this mismatch of income in one year and a deduction in another year,” Mr. Bordeleau says. “They’ve changed the rules and now you can repay most of the COVID-19-related benefits and deduct [the repayments] in [either] year.”
Aligning the income with the deductions may result in tax savings for clients, he adds.
Increased maximum for home office expense credit
Many people required to work from home because of the pandemic benefited from the simplified $2-a-day home office expenses deduction introduced for the 2020 taxation year. For the 2021 taxation year, the credit maximum of $400 has increased to $500, and the number of working days that can be claimed has increased to 250 from 200.
“To the extent that [maximum] doesn’t really resonate with how much your [home] office expenses were, there’s still the option to do the detailed method,” Mr. Bordeleau says. “In that case, you would have to have your employer provide a Form T2200. … The detailed method could be advantageous, [especially] for renters.”
Mr. Bordeleau adds that people who spent more time at home last year may also benefit from the digital news subscription fee credit. It hasn’t changed, remaining at 15 per cent of expenses up to $500 for a maximum credit of $75. But he suggests it can be useful for financially savvy clients who seek out information through multiple qualifying digital news subscriptions.
COVID-19 programs continue to evolve
Aaron Gillespie, partner, enterprise tax, at KPMG LLP in Hamilton, Ont., points out that both new and pre-existing COVID-19 relief programs were in force in the 2021 taxation year, and all income received is taxable.
The Canada Worker Lockdown Benefit was introduced toward the end of 2021 to provide up to $300 a week to individuals who can’t work because of a regional lockdown between Oct. 24, 2021, and May 7, 2022.
The Canada Recovery Sickness Benefit was introduced in 2000, but applies to individuals who can’t work because they’re sick or need to self-isolate between Sept. 27, 2020, and May 7, 2022 – so, all through 2021. It provides up to $500 a week for a maximum of six weeks.
The Canada Recovery Caregiving Benefit, also introduced in 2000, is in effect for the whole of 2021 as well. It supports individuals who can’t work because they’re caring for a child under age 12 or a family member requiring supervised care because of COVID-19.
For example, The person being cared for is sick, self-isolating, at risk of serious health complications from COVID-19, or at home because his or her school is closed. It provides up to $500 a week for a maximum of 44 weeks per household.
Business subsidies winding down
But COVID-19 subsidies on the business side are winding down, Mr. Gillespie says. “The big one was the Canada Emergency Wage Subsidy, and it ended on Oct. 23, 2021.”
Two more narrowly focused wage subsidy programs partially replaced it on Oct. 24, 2021. The Tourism and Hospitality Recovery Program is targeted toward helping that industry recover from the pandemic. The Hardest-Hit Business Recovery Program generally applies to businesses that experienced a 50-per-cent decline in revenue over a defined period.
In addition, the Canada Recovery Hiring Program also came into effect on Oct. 24, 2021. It’s a wage subsidy program applicable more broadly to businesses that are hiring more employees or offering existing employees more wages or hours.
“These programs, in general, have been fairly complex, and I would say the average business person requires some assistance to try to ensure that they’re making claims accurately,” Mr. Gillespie says.
It’s also worth watching for further updates as the pandemic and policies to deal with it evolve.
“People do have to keep up with this because there’s always movement on taxes,” he says. “Our tax system is very fluid and always changing.”
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