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New Canadian tax credits you should know about

Whether you dread tax season like a root canal or you enjoy this annual ritual of civic duty, filing taxes can get the best of us.

This is for myriad reasons, really, but the root of the problem comes down to how taxes must be completely personalized to our individual circumstances. There’s no one size fits all, and this can be really overwhelming, especially if you don’t want to use a paid tax service.

While the premise of filing your taxes is simple, and you can get away with the bare minimum, there remains the glorious proverbial carrot dangling just out of reach: optimizing your taxes to get the biggest return possible by using tax credits and deductions.

This year, Canada introduced three new tax credits that might apply to you. Find out about them below.

Work From Home Tax Deduction

If you started working from home in 2020, you probably realized how expensive it can be. You need faster internet with no data cap, more talk, text, and data on your phone, and you use more electricity being home all day, every day. (Not to mention the shocking amount of snack food consumed daily!)

To help lessen that financial blow, the CRA announced late in 2020 that Canadians would be able to deduct $2 for every day they worked from home to a maximum of $400. This is a simplified “temporary flat rate” method to counter the typically very complicated working from home tax deduction amounts.

If you worked from home for more than 50% of the time for at least four weeks in 2020, you are eligible. Make sure you take advantage of this credit if you were made to work from home; if you are in a common-law relationship or are married, you can both claim this deduction as long as you both qualify.

CERB Tax Repayment Flexibility

While not quite a tax credit, it can save you money over time.

On February 9, 2021, the government announced that once Canadians have filed their income taxes for the year 2020, they would not be required to pay any interest on tax amounts related to the Canadian Economic Relief Benefit (CERB) owing until 2022.

If you received CERB payments like many Canadians did, you are probably going to owe the government when you file your taxes because those payments were not tax free.

Normally, if you pay your income tax amount in instalments, you’ll also have to pay interest on your amount owing until you’re settled up.

Now, however, if you can’t pay your amount owing in full right away, you will have two years to do so before you would begin owing any accumulated interest.

It feels like a small thing, but ultimately is a help, especially for those of us that weren’t able to save up for tax season this year.

Digital News Subscription Service

After a very tumultuous year, the government wants to reward you for supporting Canadian journalism by subscribing to an accredited digital news service. Thanks Canada!

This credit is a bit more finicky than the others; the tax page reads, “the maximum credit will be calculated by: multiplying the lowest personal income tax rate (15%) by the total of all amounts paid by the individual for qualifying subscription expenses in the year up to $500.”

So, that’s a possible maximum credit of $500, which will reduce your total amount owing. However, given the multiplier of only 15%, it is unlikely you’ll max out that amount. Still, getting a tax credit for supporting Canadian journalism and keeping our heads on straight—pretty cool.

You qualified for this if you subscribed to a Qualified Canadian Journalism Organization (QCJO) in 2020. More info on who qualifies here.

These are the three new Canadian tax credits most likely to impact you for the 2020 tax year. Whether you’re filing by yourself online or using a service, be sure to flag these initiatives during preparation to hopefully make tax season a little less stressful!

What Are Tax Credits?

Tax credits are amounts that you can apply to use on your tax forms. These credits, when applicable, are intended to reduce your potential tax liability (what you owe to the government) to optimize your return.

If you owe $500, and you use an applicable tax credit valued at $50, you would only owe $450. However, if you were receiving a refund of $500, you would not be able to use a tax credit of $50 to receive a total return of $550.

What Are Tax Deductions or Write-Offs?

Tax deductions work differently than tax credits. Tax deductions reduce the amount of your income that can be taxed, and are more relevant to the self-employed and folks who work from home as a condition of their employment.

For example, If you earn $100 and are taxed 20%, you would owe $20 to the CRA.

If you earn $100 and use a tax deduction that shields $20 of your total income, you would pay your 20% tax on only the remaining $80, for a total tax amount owing of only $16. Like tax credits, there are only certain expenses you can write off. If you’re eligible, keep a detailed list of your expenses in case of audit.

About Mogo

Mogo (TSX: MOGO; NASDAQ: MOGO) — a financial technology company — offers a finance app that empowers consumers with simple solutions to help them get in control of their financial health and be more mindful of the impact they have on society and the planet. We all know it’s time to do things differently. It’s time for a new way to manage our money, one that’s inclusive and sustainable. One that takes into account our financial health, the planet’s health and the health of our society.