With tax season upon us, there are several tweaks to the filing process this year that Canadians need to be cognizant of before it’s time to submit that paperwork.
Understanding this year’s changes is crucial to filing taxes properly and making sure Canadians receive the biggest cheque back in returns.
“Largely, there’s not really a big, centrepiece tax credit this year,” Laura Whiteland, certified financial planner and owner of Inclusive Financial Planning, said in an interview with Yahoo Finance Canada. “It’s a lot of minor adjustments. There are some technical changes, like alternative minimum tax, but that doesn’t affect a huge number of people.”
Yahoo Finance Canada spoke to Whiteland and David Christianson, certified financial planner and portfolio manager at Christian Wealth Advisors at National Bank Financial, to go through some of the biggest tax changes that Canadians should be aware of this year.
Work from home? Filing for expenses is more complicated this year
During the COVID-19 pandemic, the federal government made it easy for Canadians to claim home office expenses, but that system has now changed.
As Canadians increasingly worked from home during the pandemic lockdowns, Ottawa introduced a temporary flat-rate method, allowing workers who spent more than 50 per cent of their working hours at home to easily claim $2 per day up to $400 in 2020, and $500 in 2021 and 2022.
Now, Canadians looking to claim home office expenses will need to get their employer to sign form T2200. Eligible employees will be able to deduct some home office expenses if they worked from home more than 50 per cent of the time for a period of four consecutive weeks in the year. Expenses that can be claimed include electricity, heat, water, and rent, but not mortgage interest or principal mortgage payments and furniture.
“If you’re working from home still, you need to get the form filled out from your employer,” Whiteland said. “Through (COVID-19), you didn’t have to have that, you could just take that smaller deduction. Basically, all the (COVID-19) stuff is largely over at this point.”
Changes for first-time home buyers
For Canadians looking to save for their first home, Canada’s First-Home Savings Account (FHSA) could have tax implications.
Canadians in the market for a new home are able to contribute $8,000 annually to an FHSA, to a maximum of $40,000, to go towards a downpayment. The FHSA includes features from a Registered Retirement Savings Plan (RRSP) as well as a Tax-Free Savings Account. Like an RRSP, contributions are tax-deductible, and like a TFSA, growth earned on the contributions is tax-free.
“If you’re in that position (where) you’re looking to buy a house, 100 per cent of people should be looking at the First-Home Savings Account for that,” Whiteland said. “It’s their Ferrari of registered products because it’s a lot of horsepower under the hood there.”
While the deadline to open and contribute to FHSA has already passed for this year, the more than 300,000 Canadians who opened an account as of December will need to make note of their accounts on this year’s taxes.
Contribution limit changes for 2024
Several savings and retirement accounts have upped the maximum contributions, according to Whiteland.
“All those numbers sort of increase with inflation,” she said.
The TFSA contribution limit is up $7,000 this year. On top of the new maximum for the TFSA, the Canada Pension Plan (CPP) hiked its limit to $3,754.45 and the Employment Insurance contribution is maxed out at $1,002.45.
“People might see (with) some of their first paycheques, they’re paying a little bit more into those programs,” Whiteland said. “The CPP increase is part of CPP enhancements, so there’s a little bit more with that program.”
When it comes to the TFSA, Christianson recommends creating an account if you have money in savings that you’re not using.
“If there’s no particular purpose for that money, or even if you’re planning on using it in a year, the TFSA is a great place to put it, to move that investment, because the investment income has been sheltered from tax and you never pay any tax when you take the money out,” he said in a phone interview.
When it comes to the RRSP, the contribution limit is $30,780 or 18 per cent of your income, whichever is lower. The deadline this year for contributions was Feb. 29.
You may recall that as a result of the widespread work-from-home arrangements that began due to the COVID-19 pandemic, the Canada Revenue Agency (CRA) introduced a simplified method for employees to claim home-office expenses.
Under this method, which was available for the 2020, 2021 and 2022 tax years, you didn’t have to track your actual home-office expenses. Instead, employees could claim $2 per day for up to 250 days, or $500 ($400 for 2020), as employment expenses. No receipts or proof of your expenditures was needed, and, most significantly, no CRA form was needed from your employer to certify your work-from-home arrangement.
But for the 2023 tax return, which is generally due on April 30, 2024, employees who wish to claim home-office expenses will have to go through the tedious exercise of tallying all their expenses, prorating them and then claiming the appropriate amount as a deduction on their 2023 returns.
Here’s a quick guide to the home-office expense rules for employees, which expenses qualify and how the calculation is supposed to be done based on the latest guidance released by the CRA earlier this month.
To be entitled to deduct home-office expenses, you must be required to use a part of your home for work. The CRA has confirmed that the requirement to maintain a home office need not be part of your formal contract of employment; rather, it will be sufficient if there is a verbal or written agreement.
The CRA recently clarified that if you voluntarily entered a work-from-home arrangement with your employer, the agency will consider you to have been required to work from home for tax purposes, even in a hybrid-work arrangement.
For the 2023 tax year, the CRA has stated you will be qualified to write off your home-office expenses if your home workspace is where you “principally” — meaning more than 50 per cent of the time — performed your duties of employment for a period of at least four consecutive weeks during 2023.
For example, if you’re in a hybrid-work arrangement that has you go into the office on Tuesdays and Wednesdays (or 40 per cent of the time), this condition would be satisfied since you are working from home the other three out of five weekdays (60 per cent).
Your workspace can be a designated room that is used only for work, or it can be in a common area that has other purposes, such as a kitchen table where you sit during working hours.
To be able to make a claim for 2023, you’ll need to get a signed copy of CRA form T2200- Declaration of Conditions of Employment from your employer. The T2200 is not submitted with your return, but you’re required to keep it in case the CRA asks to see it later.
You can claim a variety of home-office expenses, such as the cost of utilities, rent, maintenance and minor repair costs, and home internet access fees. You generally can’t deduct mortgage interest, property taxes, home insurance, capital expenses (such as changing a furnace or windows) or depreciation (capital cost allowance).
That means the cost of a new, ergonomic office chair isn’t tax deductible, nor is the cost of a large, widescreen monitor, both of which are considered capital expenses. The cost of most standard office supplies, such as printer paper, ink, pens and sticky notes, are also deductible.
Commission-based employees who sell goods or negotiate contracts can claim some expenses that salaried employees cannot, specifically: home insurance, property taxes and the costs to lease a cellphone, computer, laptop, tablet, etc., that relate to earning commission income.
For utilities, rent and other home expenses, you need to allocate the expenses on a “reasonable basis” to determine the portion related to employment use. This is typically done by dividing the area of the workspace by the total finished area (including hallways, bathrooms, kitchens, etc.) of the home. You can’t include expenses related to a part of a home that was not used as a workspace, such as the cost of repainting a bedroom where you did not work.
The home-office expense deduction is calculated based on eligible home-office expenses, the percentage of the home’s area that’s used for a home office and, for a shared space such as the kitchen table, the amount of time worked from that space. To make your claim, you’ll need to complete CRA form T777 Statement of Employment Expenses, and file it with your income tax return.
If you worked from home for only part of the year, you can only claim expenses paid for the part of the year that you worked there at least 50 per cent of the time for at least four consecutive weeks.
Edward Rajaratnam, Canadian practice lead partner with Ernst & Young’s (EY) global employment tax services group, has been fielding numerous questions from employers on the new rules for 2023, and the logistics of completing T2200s for multiple employees.
“I’m disappointed that the rules didn’t come out earlier,” he said, noting that employers are now scrambling to put in place processes to get T2200s in the hands of qualifying employees in time for personal tax filing season.
EY has held two webinars over the past month to provide relevant and timely information on the new T2200 rules to the business community. It has also developed service solutions to help ease the administrative burden of employers looking for assistance in completing the T2200s for hundreds of employees — or thousands in some cases — that may not have the resources to do the work internally.
This year’s RRSP contribution deadline falls on Feb. 29, which is the 60 days after Dec. 31. The deadline is important if you want to be able to claim the deduction on your 2023 tax return, which is generally due April 30.
The amount you can contribute for the 2023 tax year can be found at the very bottom of your “RRSP deduction limit statement” on your Notice of Assessment. It can also be looked up online using the Canada Revenue Agency‘s My Account. For 2023, the RRSP deduction limit is $30,780 or 18 per cent of your 2022 earned income, whichever is lower, subject to any pension adjustment from your employer, plus any unused RRSP deduction room carried forward.
The origin of my tax dispute can be traced back to March 12, 2020. I had Toronto Maple Leafs tickets for that night’s game against the Nashville Predators, and my son was to meet me downtown after work for the game. But things would dramatically change: that afternoon, the NHL suspended all games due to COVID-19 and our offices shut down that evening for what would turn out to be many months.
As of March 13, I began working from home full time, using a spare bedroom as my new office. I deducted some home-office expenses for the first time in my career when I filed my 2020 tax return.
Employees who are working from home due to the pandemic have two methods to claim work-from-home expenses: the temporary flat rate method ($2 per day, up to $500 in 2022) and the detailed method, where employees tally up the actual expenses incurred and allocate them on a “reasonable basis” to determine the portion related to employment use. This is typically done by dividing the workspace area by the home’s total finished square metres (including hallways, bathrooms, kitchens, etc.).