More Than a Year into the Pandemic – We Continue to Learn
As we have adjusted our lives to cope through the pandemic, most of us have had no choice but to change and adapt to the constantly evolving situation. One thing we have learned is that we can successfully adjust quickly.
Access to the internet has been critical for most people to survive. Many have been forced to work from home (more on that later when it comes to deducting expenses) at the same time kids have been forced to learn from home as well. Changes like these have impacted us, although each of us have had different experiences and challenges.
Here is a few more things we have learned.
After several shutdowns, many that are still earning full salaries have struggled to spend money on many of the things they were spending on in the past. This has created an interesting situation.
Statistics Canada recently announced that household financial assets rose for a fourth consecutive quarter and the debt-to-income ratio fell. That means Canadians now have higher assets and lower debt compared to prior to the pandemic. It remains to be seen what happens to these savings after the pandemic ends. Unfortunately, history suggests we will likely see most people resume their old habits and many will find themselves spending even more, because they have it. While all this spending will be very good for the economy in the short term, it will likely be a drag on the economy in the longer term. Once the money is spent, debt levels will likely creep back up to pre pandemic levels. And all this could be happening as we experience higher interest rates. If that turns out to be the case, it will mean more cost to service the growing debt.
The pandemic has forced many people to work from home. Some Canadians are for the first time assuming they can claim home office expenses for the period they work from home. Unfortunately, due to our current tax rules many will not qualify. It is important to understand that before considering any deductions, employees must have a T2200 form completed by their employer. Even after this form is completed, rules still apply, and you cannot claim expenses that are reimbursed by your employer.
When it comes to home office expenses, you must check to see exactly what you qualify for. For example, the deductions are different if you rent or own your own property. They are also different if you earn commissions vs earn a regular salary. In all cases, they will be based on a percentage of space used for business. Even after this, further conditions apply, and the employee would still need to meet one of the following two conditions:
- the workspace is where the employee works more than 50% of the time; or
- the employee uses the workspace exclusively to earn employment income, and it is used on a regular and continuous basis for meeting clients, customers, or other people in the course of the employment duties.
These conditions might be tough to meet. What is the 50% rule based on? Is it based on annual, quarterly, monthly work time and would any of these timelines meet the regular and continuous basis rule?
Also, would someone that spends their days with virtual meetings and conference calls with clients and customers qualify? Under current rules, probably not.
I recommend speaking to a qualified tax advisor about your specific work circumstances, especially if they changed during the pandemic.
There is no doubt the pandemic has been a learning experience and that learning is far from over. Working with qualified experienced professionals can really pay off while helping you through these challenges.
Posted By: Halton Wealth ManagementPosted on July 15, 2021.
Posted in Blog