Income tax returns for 2021: what you need to know

With the tax season upon us, the Canada Revenue Agency has highlighted what’s new on income tax and benefit returns.

Canada workers benefit. The refundable tax credit for low-income earners has different benefit rates and income thresholds for 2021, as well as a new “secondary earner exemption.”

Climate action incentive payment. Prior to 2021, this was a refundable tax credit. Now, eligible residents of Alberta, Saskatchewan, Manitoba and Ontario will automatically receive the payments four times a year starting in July 2022. To receive payments, a tax return must be filed. A supplement for residents of small and rural communities may be available for those currently residing outside a census metropolitan area and who expect to continue to do so on April 1, 2022.

Home office expenses. Clients may be able to claim a deduction of up to $500 for home office expenses in the 2021 tax year using the temporary flat-rate method if they worked more than 50% of the time from home for a period of at least four consecutive weeks due to Covid-19. This method can also be used if the employer provided a choice to work from home due to Covid-19 during this period.

Zero-emission vehicles (for capital cost allowance). The definition has changed for vehicles acquired after March 1, 2020. A vehicle may still qualify if it was subject to a prior capital cost allowance or terminal loss claim provided that the vehicle wasn’t acquired by the taxpayer on a tax-deferred rollover basis nor previously owned or acquired by the taxpayer or a non-arm’s length person or partnership.

Support for farmers. The federal government outlined in Budget 2021 the objective of returning a portion of the proceeds from the price on pollution to farmers in jurisdictions that don’t have a carbon pricing system. The designated provinces are currently Ontario, Manitoba, Saskatchewan and Alberta. For 2021 under proposed legislation, farmers who incur eligible farming expenses of $25,000 or more, which are all or partially attributable to designated provinces, may be able to receive a credit of $1.47 per $1,000 in eligible farming expenses.

Educator school supply tax credit. The government proposes to expand this credit to allow teachers to claim a 25% refundable tax credit for purchases up to $1,000 on eligible teaching supplies bought during the tax year. The government also proposes to expand the list of eligible teaching supplies to include electronic devices such as graphing calculators, digital timers, and tools for remote learning. These enhancements would take effect starting with the 2021 tax year.

Northern residents deductions. To confirm eligibility for these deductions, visit Line 25500 — Places located in prescribed zones. The deductions, for residency and travel benefits, are available to those who permanently live in a prescribed zone for a continuous period of at least six consecutive months, beginning or ending in the tax year.

The residency deduction is based on number of days lived in a prescribed zone during the tax year.

The travel deduction is being expanded to be available to eligible northern residents who take a trip even if their employers don’t provide travel benefits for personal travel.

Eligible individuals living in a prescribed northern zone can claim the full amount of these deductions, and those living in a prescribed intermediate zone can claim 50% of these deductions. For more information, visit Northern Residents Deductions for 2021.

Finally, review our handy list of essential tax numbers so you’re aware of limits, deductions and more.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.