Adams Wooley, Chartered Professional Accountants

Consequently, it’s a good idea for all employees to review the TD1 form prior to the start of each taxation year and to make any changes needed to ensure that a claim is made for any and all credit amounts currently available to him or her Doing so will ensure that the correct amount of tax is deducted at source throughout the year

As well, it’s often the case that a taxpayer will have available deductions which cannot be recorded on the TD1, like RRSP contributions, deductible support payments, or child care expenses While such claims make things a little more complicated, it’s still possible to have source deductions adjusted to accurately reflect those claims, and the employee’s resulting reduced tax liability for 2023 The way to do so is to file Form T1213 – Request to Reduce Tax Deductions at Source (available on the CRA website at https://www canada ca/en/revenue-agency/services/forms-publications/forms/t1213 html) with the Agency Once that form is filed with the CRA, the CRA will, after verifying that the claims made are accurate, provide the employer with a Letter of Authority authorizing that employer to reduce the amount of tax being withheld from the employee’s paycheque – and thereby increasing the employee’s take-home income

Of course, as with all things bureaucratic, having one’s source deductions reduced by filing a T1213 takes time While a T1213 can be filed with the CRA at any time of the year, the sooner it’s done, the sooner source deductions can be adjusted, effective for all subsequent paycheques Providing an employer with an updated TD1 for 2023 as soon as possible, along with filing the T1213 with the CRA where circumstances warrant, will ensure that source deductions made starting January 1, 2023 will accurately reflect all of the employee’s current circumstances, and consequently his or her actual tax liability for the year – and, potentially, provide the employee with a little more cash flow to meet day to day expenses

Over the past three years, the structure of work-from-home arrangements for employees has been a constantly changing landscape In 2020, almost all employees who could work from home were required to do so, as most workplaces were closed under pandemic public health lockdown rules As the pandemic eased (slightly) in 2021, employees began, in some cases, to return to the workplace on a part-time or full-time basis That trend has continued in 2022, although in most cases employees are now working from home by agreement with their employer, rather than because of the requirements of a public health mandate

As the necessity and availability of work-from-home arrangements changed over the past three years, so too did the tax rules under which employees could claim a deduction for home office related costs Under the tax rules in place prior to 2020, such a deduction was available only where employees met a number of criteria and could provide the tax authorities with an itemized accounting of eligible home office expenses incurred, as well as attestation from their employer of the terms of the work-from-home arrangement In 2020, however, the federal government, recognizing that millions of Canadians would be claiming home office expense deductions for the first time, simplified the rules to provide for a standardized deduction claim for eligible employees who were working from home because of the pandemic

The standardized deduction is still available to be claimed by individual employees who worked from home during 2022 However, the eligibility criteria for claiming the standardized deduction (which is the same test which applied in 2020 and 2021) may be more difficult for employees to meet in 2022, as work-from-home arrangements have evolved

The standardized claim for home office expenses which was introduced in 2020 allows employees to claim a deduction of $2 per day for each day that the employee worked from home There is no requirement to document expenses incurred and no need to provide verification from an employer that the work from home arrangement was required of the employee However, in order to be eligible for the standardized deduction for 2022, the following criteria must be satisfied:

• an employee must have worked from home during the year due to the COVID-19 pandemic: and
• the work from home arrangement must have lasted for at least four consecutive weeks, with the employee working from home at least 50% of the time during those four consecutive weeks

It may well be that many employees who continued to work from home during 2022 for at least part of the time will not be able to fit themselves into the eligibility criteria for claiming the standardized deduction, because their work arrangements throughout the year had them in the office for more than 50% of the time (i e three days week in the office, two days working from home), or because any time period when they did work more than 50% of the time from home did not last at least four consecutive weeks In such cases, the employee should consider whether he or she can make a claim for a home office expense deduction using the detailed method which was in place prior to 2020 and continues to be available for 2022 And, while the record keeping requirements to claim such a deduction under the detailed method will be more onerous, using that detailed method can often produce a bigger expense claim and therefore a better tax result for the taxpayer

In order to claim a deduction for costs related to a work from home space using the detailed method, an employee must meet at least one of the following conditions

• The employee worked from home during 2022 as a consequence of the pandemic (including employees who were given a choice and elected to work from home); or
• the employee was required by his or her employer to work from home during 2022 (this can be just a verbal or written agreement between employer and employee)

In addition, at least one of the following criteria must also be satisfied in order to claim work from home costs under the detailed method:

• The work from home space is where the individual mainly (more than 50% of the time) did his or her work for a period of at least four consecutive weeks during 2022; or
• The individual uses the workspace only to earn his or her employment income
• He or she must also use it on a regular and continuous basis for meeting clients, customers, or other people in the course of his or her employment duties

Once these threshold criteria are met, a broad range of costs become deductible by the employee Specifically, a salaried employee can claim and deduct the part of specified costs that relate to his or her work from home space, such as rent, utilities costs like electricity, heating, water (or the portion of a condo fee attributable to such utilities costs), home maintenance and minor repair costs, and internet access (but not internet connection) fees

Once total expenses are tallied, the taxpayer must determine the percentage of those expenses which can be deducted as home office expenses, and the CRA provides detailed information on its website of how such determination is made Generally, the employee determines that percentage based on the square footage of the workspace as a percentage of the overall square footage of the home Where the workspace is not a separate room but is a shared space like a dining room, the employee must also calculate the number of hours for which that space is dedicated to work from home activities Detailed information on how to make those calculations (including an online calculator) can be found on the CRA website at https://www canada ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/line-22900-other-employment-expenses/work-space-home-expenses/work-space-use html

In all cases, the CRA can ask the taxpayer to provide documentation and support for claims made using the detailed method

There is one further requirement for employees who seek to deduct costs incurred in relation to a home office using the detailed method Each such employee must obtain either a T2200S Declaration of Conditions of Employment for Working at Home Due to COVID-19 - Canada ca or T2200 Declaration of Conditions of Employment - Canada ca On those forms, the employer must certify the work from home arrangement and confirm that the employee is required to pay his or her own home office expenses and is not being reimbursed for any such expenses incurred Where there is any kind of reimbursement provided, the employer must specify the type of expense reimbursed, and the amount of reimbursement And, of course, the employee cannot claim a deduction for any expenses for which reimbursement was received

For the many taxpayers who claimed the standardized home office expense deduction in 2020 and 2021, the filing season for returns for 2022 may be the first time they encounter the rules and requirements which govern claims for home office expenses using the detailed method It would, therefore, be advisable to do some upfront planning to determine what kind of deduction claim (standardized vs detailed) they may be able to make for 2022, and to ensure that any record keeping needed to support that deduction is done before tax filing season arrives a few months from now

The majority of Canadians who are not members of an employer-sponsored defined benefit registered pension plan save for retirement through a registered retirement savings plan (RRSP) For those Canadians who have accumulated retirement savings in an RRSP, the year in which they turn 71 is decision time By the end of that year, all RRSPs must be closed, and the RRSP holder must decide whether to transfer his or her accrued savings into a registered retirement income fund (RRIF), or purchase an annuity, or both (It’s also possible to collapse the RRSP and include all RRSP amounts in income for that year, but such a course of action is rarely advisable from a tax perspective)

Most RRSP holders choose to transfer funds held in an RRSP to an RRIF, and that transfer can be done on a tax-free basis In addition, investment returns on funds transferred to the RRIF can continue to accrue tax-free The RRIF holder is, however, required to withdraw a minimum amount each year (based on the RRIF holder’s age and the amount in the RRIF at the start of the year), and that withdrawn amount is taxed as income

Where the RRSP holder chooses to purchase an annuity, he or she pays a specified lump sum amount to the annuity issuer, usually an insurance company, in exchange for which he or she is guaranteed an annual income of a specified amount for the remainder of his or her life That income, too, is taxable to the annuity holder

While each of the available options (RRIF and annuity) has upsides and downsides, the main underlying consideration is the same for both And that is how to generate enough income to have a comfortable retirement, while still ensuring that savings accrued will last the remainder of one’s life How, in other words, to avoid the dismal prospect of outliving one’s savings, or spending too much early in retirement and being left with insufficient income to meet one’s expenses late in life? And, of course, it’s impossible to find a definitive answer to that question, since none of us knows what the future holds, in terms of either health or longevity

Typically, expenses are higher early in retirement, when retirees are likely to be healthier and more active, and retirement plans may include travel and the pursuit of hobbies and interests However, while such activities and their associated costs likely dwindle as retirees age, other types of expenses come into play – especially expenses related to the need to pay for medical costs, household and personal services, and ultimately, personal and/or medical care in an assisted living facility The prospect of such future costs can make retirees reluctant to spend accrued savings (or annuity income), out of concern that such funds will be needed in the future to pay for care

The worry about reaching an age where some degree of care is required (and must be paid for) is an entirely realistic one for retirees According to Statistics Canada’s figures, the average Canadian who has reached the age of 75 has a life expectancy of another 12 years And, since that figure represents an average, a significant number of 75-year-olds can expect to live longer than that Again according to StatsCan figures, there were, in 2021, over 860,000 Canadians aged 85 or older

With all of these demographic and financial realities in mind, the federal government announced, in 2019, the availability of a new kind of annuity – the advanced life deferred annuity or ALDA As is the case with all annuities, the annuity issuer agrees, in exchange for receiving a specified lump sum amount, to provide an annual income of a specified amount to the annuitant The difference, however, is while an ALDA can be taken out at any time, payments under the ALDA can be deferred to as late as the end of the year in which the annuitant turns 85

While the security provided by such a retirement income structure would certainly be welcome to most retirees, the obvious concern where payments under an annuity are deferred is the possibility that the annuitant won’t live long enough to collect those payments, and that the funds expended to purchase the ALDA will effectively be wasted There are two options to address that (legitimate) concern First, an ALDA can be structured as a “joint-life” contract, under which payments will be made to the surviving annuitant (most often the spouse of the ALDA purchaser) for the remainder of his or her life It’s also possible to structure the ALDA to provide for a lump sum death benefit to be paid to a beneficiary or beneficiaries (for example, the annuitant’s children) on the death of the annuitant