Today, to bring some normalcy back to the blog, I will again provide a single tax season confession for the 2021 tax season.
Home office claims
The most important change for your 2020 tax filing is how you claim your home office expenses. I detailed these changes a month ago, so please refer there for more details.
A couple new tax credits
For 2020, there are a couple new tax credits:
- Digital News Subscription Credit – This non-refundable credit may be available if you paid for a digital news subscription in 2020. The limit is $500. You can find the details here.
- Canada Training Credit – Per the CRA, “Eligible workers of at least 25 years old and less than 65 years old at the end of 2019 and later years, and who meet certain conditions will accumulate $250 a year, up to a lifetime limit of $5,000 to be used in calculating their Canada Training Credit, a new refundable tax credit available for 2020 and future years. Based on the information on their return, the CRA will determine their Canada training credit limit for the 2020 tax year and provide it to them on their notice of assessment for 2019 and will be available in My Account.”
U.S. capital gains reports
I apologize for repeating this point—it’s at least the fourth time I’m mentioning it on the blog—but it is a major pet peeve of mine. Here goes: We continue to receive realized capital gains reports for clients for their U.S. holdings brokerage accounts that are not properly converted for Canadian taxes.
To properly report your U.S. or any foreign stocks trades, the original purchase should be converted at the exchange rate at the date of purchase (or, if not available, at the average exchange rate for the year of purchase), and the sale should be converted at the exchange rate on the date of sale (or, if not available, at the average exchange rate for 2020).
I continue to receive capital gain reports with both the purchase and sale converted at the 2020 average exchange rate. Since the U.S. dollar has risen over the years, a purchase made several years ago likely would have a large foreign exchange gain component that is not being reported.
Property received by inheritance
As baby boomers or, more particularly, their parents age and pass away, many Canadians have inherited real estate, stocks or other capital property. A tax season issue I have been noticing is that people who have inherited property and then sold it often do not know what their adjusted cost base is on the inherited property. This is problematic in determining the related capital gain.
The reason for this cost base gap is most typically that the child who inherited the property does not have a copy of their parent’s terminal tax return (final tax return of the parent for their year of death). On a terminal return, there is what is known as a deemed disposition that reports the fair market value of a deceased person’s real estate, stocks or other capital property. The deemed disposition amount would become the child’s adjusted cost base for when they sell the property.
This is best explained by an example. Say Mr. A and Mrs. A were the parents of Susan. Mr. A and Mrs. A owned a cottage property that was purchased many years ago for $200,000. When Mr. A passed away 10 years ago, he left the cottage to Mrs. A (this is typically a tax-free spousal transfer with no tax implications). However, Mrs. A passed away five years ago when the cottage was worth $900,000. When Mrs. A’s accountant filed her terminal return, they reported a deemed disposition of the real estate at $900,000 and paid capital gains tax on the gain of $700,000 ($900,000 value at death less $200,000 original cost). Susan’s adjusted cost base upon inheritance became the $900,000 deemed disposition amount.
Where you have inherited real estate, stocks or other capital property, it is important that you obtain and keep a copy your parent’s final tax return so you can provide your accountant the return to ensure the correct adjusted cost base if reported when you sell the property.
Many clients provide multiple tax receipts for the same pharmacy or medical practitioner. Your accountant will love you if you ask the pharmacy and your medical practitioners to provide a yearly summary of all payments, so your accountant only has to deal with a few receipts instead of multiple receipts.
Here’s hoping you have a 2020 refund or owe less tax than you anticipated.
The content on this blog has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The blog cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information on this blog or for any decision based on it.
Please note the blog posts are time sensitive and subject to changes in legislation.
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