Crowe Soberman’s annual Tax Tips Guide is here to assist in your tax planning, presenting quick suggestions and strategies for you to employ.
If you are employed
Reduce tax withheld at source
If you will have large tax deductions available to you (e.g., RRSP contributions, tax shelters, interest, business losses, work related car expenses, tuition credits, or alimony), apply in advance to the CRA for a reduction of the payroll withholdings that are withheld from your salary by completing Form T1213, Request to Reduce Tax Deductions at Source.Minimize taxable employee benefits
Arrange to receive non-taxable benefits from your employer instead of taxable benefits where possible. Examples of non-taxable benefits include employer contributions to a registered pension plan (the pension is taxable when you receive it); and contributions to a “private health services plan,” such as those covering medical expenses, hospital charges and drugs not covered by public health insurance and dental fees.
Employee loans
If you received interest-free or low- interest loans from your employer, these loans would generally result in a taxable benefit. Certain employee loans are not taxable if they meet specific criteria, including:- A loan that is used to the employee or their spouse to enable them to purchase a dwelling for their habitation.
- A loan made by the employer to the employee to enable them to acquire shares of the corporation from treasury.
- A loan made by the corporation to enable the employee to purchase a motor vehicle that is used to perform employment duties.
Employee loans are subject to an imputed taxable interest benefit that is computed at the CRA prescribed interest rate and applies throughout the period the loan is outstanding. If you pay interest on the loan at a rate that is at least equal to the CRA prescribed interest rate, and such interest is paid by January 30 for the preceding calendar year, then the imputed interest benefit does not apply.
Interest paid to your employer on these loans is only deductible to you if the loan is used to earn income from business or property. If the loan is used for personal reasons, the interest is not deductible. If the interest on the employee loan is not deductible, be sure to pay any interest payable on the loan for 2021 by January 30, 2022 to reduce or eliminate your taxable benefit. Where the interest on the loan is not paid by January 30, the imputed interest benefit discussed above will apply.
If you have an existing employee interest-bearing loan that was used for one of the qualifying purposes listed above (e.g., home purchase), consider renegotiating the loan with your employer to minimize taxable benefits by “locking in” the loan at a lower prescribed interest rate for a five-year term. The prescribed interest rate currently in effect is one per cent.
If you worked from home more than 50 per cent of the time in 2021, you may be eligible to deduct home office expenses. As an employee, you will need to obtain a Form T2200 from your employer to be eligible for the deduction. You may be able to deduct utilities, internet, property tax/rent and other expenses related to your home office. For the 2020 tax year, the government introduced a simplified home office expense deduction of up to $400 for all employees who worked from home. A similar deduction has not (at least yet) been introduced for 2021.
If your employer provides you with an automobile
The taxable benefit is based on original cost of the automobile and does not decrease as the car ages. Consider purchasing the car from the company by way of an interest-free loan from your employer and personally claiming depreciation on the car.Avoid employer-owned vehicles costing over $30,000.
You can reduce the taxable benefit if your automobile is used primarily (generally, greater than 50 per cent) for business purposes and by keeping your personal use to less than 20,000 kilometers per year. However, due to the pandemic an employee’s business use of a vehicle may be significantly reduced while personal use is unchanged. Under the pre-COVID-19 taxable benefit rules, an employee would be penalized with a high standby charge used to calculate the taxable benefit when personal use is greater than business use. However, the government has provided relief by allowing employees to calculate their 2021 operating expense benefit based on their 2019 usage if they are employed by the same employer they worked for in 2019 and if business use would have been more than personal use before the pandemic.
If you received Employment Insurance (“EI”) Benefits and incurred Childcare expenses
The Department of Finance has amended legislation that would allow Canadians receiving EI benefits to claim the Child Care Expense Deduction for 2021. Under the pre-pandemic rules, EI recipients were not able to deduct Child Care Expenses against their EI income.
If you work in the United States
A Canadian resident who works in the United States may deduct contributions made to an American pension plan, under certain circumstances, up to the taxpayer’s RRSP deduction limit. This will reduce the individual’s unused RRSP contribution room.
Adam Scherer
Managing Partner
Adam Scherer Professional Corporation