New year, new tax rules: Why the upcoming tax season will be a challenge
'Overall, we're anticipating a more complex tax season than we've seen for some time'
The 2020 tax season will look different for many Albertans, financial experts say.
"I think for a lot of people if it hasn't already felt and looked like chaos, it will probably feel that way," said Sandi Martin, partner and financial planner at Ontario-based Spring Financial Planning Inc.
"I think a lot of people this year, more so than most, are going to feel just a little bit worried that they're not doing all the right things or have all the right slips."
For many, the pandemic changed their job situation, the source of their income and introduced unexpected expenses like medical or childcare.
Here's what to expect this upcoming tax season and how to prepare.
Experts in the financial sector agree that federal aid programs for individuals introduced during the pandemic may be the biggest change when filing income taxes.
The Canada emergency response benefit income, or CERB, was the largest federal aid program for individuals in both dollar amount and uptake. It provided monthly, taxable payments of $2,000 to Canadians who lost income because of COVID-19.
About 1.07 million Albertans received CERB money in 2020.
It's a taxable benefit, which means it has to be accounted for when filing taxes, said Mark Kalinowski, a Calgary-based financial educator with the Credit Counselling Society.
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Many Albertans were also on E.I. — employment insurance — during the pandemic and may need to pay further taxes on those dollars, Kalinowski said.
Many younger individuals who relied on federal aid programs this year could be filing taxes for the first time.
"One thing we're expecting is that there's going to be a lot more tax filers, and that's because a lot more younger people will have received taxable income by way of the CERB in 2020," said Evelyn Jacks, president and CEO of the financial education institution Knowledge Bureau.
Changes to the upcoming tax season also include indexed tax brackets and a change to the basic personal amount, Jacks said.
The basic personal amount is a non-refundable tax credit that can be claimed by all individuals.
"The purpose of the BPA is to provide a full reduction from federal income tax to all individuals with taxable income below the BPA," the federal government's website says.
In 2020, the maximum BPA climbed from $12,298 to $13,229 for individuals with a net income of $150,473 or less.
New expenses to claim
The pandemic brought many changes to people's income, but for some it meant new expenses.
"Overall, we're anticipating a more complex tax season than we've seen for some time," Jacks said.
For those working at home, some home office expenses can be claimed.
The Canada Revenue Agency will allow eligible Canadians who worked from home to claim up to $400 as a tax deduction for the 2020 tax year.
Overall, we're anticipating a more complex tax season than we've seen for some time.- Evelyn Jacks, Knowledge Bureau
"I think a lot of people are going to have questions about that," Martin said.
Extra childcare costs, medical expenses and care-giving expenses due to the pandemic could also be claimed come tax time, Jacks said.
High-income earners might now also qualify for some of the programs, such as the Canada child benefit, she said.
"There's a very diverse set of scenarios that Albertans may not have thought about before the second wave [of the pandemic]," Jacks said.
"But now, as you're struggling through the second wave, make sure that any expenditure that you think about, the tax system may actually able to help you out."
How to get ready
Tax season officially starts in February, traditionally the time when the Canada Revenue Agency starts accepting tax returns.
Although 2020 has been a tough year for many, financial experts say it's important people file their tax returns.
Jacks said parents should file their 2019 and 2020 income taxes as those income totals will be used to calculate the new supplement of the Canada child benefit when it comes into effect in 2021.
"That's why if you haven't filed a tax return yet, it's most important that you do so," she said.
For many people, getting tax papers ready may be low on the priority list as people continue to deal with the pandemic, Martin said.
"Keeping the receipt for your office chair hasn't probably seemed quite important and will only seem important once the time comes to deal with it and you're just overwhelmed," Martin said.
"If you're filing on your own or if you typically go to a place on the street that doesn't have that sort of continuity of a professional that knows you and deals with your situation, if you want to get the most out of tax time, you have to go back and read what's required for the year.
"You have to be your own advocate, essentially."
Organize papers ahead of tax time
Martin recommends people carve out 15 minutes each week to organize papers ahead of tax time so it's not a last-minute task.
"The more you can do for yourself to advocate for the best tax position you can be in, the better off you'll be."
Jacks also recommends that if possible, people should make an RRSP contribution to help reduce their net income.
The three financial experts all agree that people with questions should ask an accountant or a volunteer at a virtual tax preparation clinic as soon as possible.
"A lot of people will miss out on tax savings just because of the lack of clarity," Martin said.
"I would hate for that to happen because people need every little cent they can get out of it right now."