Skip to Main Content

Tax Tips for an Extraordinary Year

Tax specialist John Waters Vice President, Director of Tax Consulting Services, BMO Wealth Planning & Advisory Services, offers key talking points to help you structure necessary planning conversations with your clients – potentially helping to reduce their tax bill after one of the most financially trying years in more than a decade.

February 2021

Photo of John Waters

John Waters

CPA, CA, CFP, TEP, Vice President, Director of Tax Consulting Services, BMO Wealth Planning & Advisory Services

Read bio

Tax specialist John Waters Vice President, Director of Tax Consulting Services, BMO Wealth Planning & Advisory Services, offers key talking points to help you structure necessary planning conversations with your clients – potentially helping to reduce their tax bill after one of the most financially trying years in more than a decade.

Since 2020 was anything but ordinary, many clients may be feeling extra anxious when it comes to tax season this year – whether it’s questions on new relief measures, knowing what home office expenses to claim, or even missing out on a specific savings strategy. This creates an enormous opportunity for Advisors to add value for their clients by helping them navigate the sea of complexities.

As an Advisor, knowing what relevant tax changes to consider, and having planning conversations with your clients AHEAD of time, will help bring peace of mind – and deepen relationships. It doesn’t have to be a technical discussion, but it should be a helpful starting point to allow them to take stock of what happened last year, and understand the potential tax issues at hand. The knowledge could also benefit your own practice, particularly since many of the new programs introduced apply to a wide range of Canadians.

Understanding COVID relief measures

First off, it’s wise to review the potential tax implications of some of the new relief programs announced in 2020 that many Canadians took advantage of last year.

For example, the Canada Emergency Response Benefit, also known as CERB, and the Canada Emergency Student Benefit (CESB) are taxable, and therefore will be reported as income when filing a return (T4A slips should be received by March 10, 2021). However, no income tax was withheld on the payment of these benefits, so it will be important to set aside adequate funds for any future tax liabilities. Even some of the newer measures that became effective last September – including the Canada Recovery Benefit (CRB) – have only 10% withholdings, so this needs to be taken into account.

In addition, unlike CERB, the CRB – which was introduced in lieu of CERB and for those who couldn’t qualify for Employment Insurance (EI) – has the added income threshold of $38,000 per calendar year. Recipients have to reimburse $0.50 of the CRB for every dollar of net income earned above $38,000 (excluding the CRB), which is repayable on their income tax return (for 2020 or 2021).

For business owner clients, it’s also important to make them aware of some changes announced in the Fall Economic Statement released in late November, to help support companies during these challenging times, including:

  • Increasing the maximum Canada Emergency Wage Subsidy (CEWS) rate to 75% for the period beginning December 20, 2020 until March 13, 2021
  • Extending the current subsidy rates of the Canada Emergency Rent Subsidy (CERS) to March 13, 2021, to provide greater certainty to businesses
  • Lengthening the deadline to apply for a Canada Emergency Business Account (CEBA) loan to March 31, 2021 – and increasing the loan amount as of December 4, 2020
  • Creating the Highly Affected Sectors Credit Availability Program (HASCAP) to offer low-interest loans for the hardest hit businesses in sectors like tourism and hospitality, hotels, arts and entertainment

New Ikea desk purchase? Check.

Another filing issue to flag this tax season will be the home office deduction, particularly with an influx of the population working remotely who are now able to qualify for this benefit. At a high level, for 2020 there are two claim methods to understand, the temporary flat rate option, and the detailed process (which has always existed, albeit tweaked slightly now to make it easier to qualify).

With the former option, clients with modest expenses can claim $2 for each day worked from home in 2020 as a result of the pandemic, up to a maximum of $400, while the latter allows for total actual amounts paid, supported by documentation and a signed form by the employer.

At the end of day, the best option will be dependent on your clients’ personal situation. While many will likely opt for the temporary method even though it’s not a significant amount, it offers simplicity in that it doesn’t require employer-signed forms or supporting documentation. Meanwhile, it will be more advantageous for those with larger expenses – including renters – to take the detailed route, which obviously requires more planning and work when it comes down to tracking receipts.

Here’s a helpful comparison of the two options from the CRA website to give you more insight, which could also be useful for your own business:

Temporary flat rate method

Applies to:

  • eligible employees working from home in 2020 due to the COVID-19 pandemic

With this method:

  • you can claim $2 for each day you worked from home in 2020 due to the COVID-19 pandemic, up to a maximum of $400
  • your employer is not required to complete and sign Form T2200
  • you are not required to keep documents to support your claim

Detailed method

Applies to:

  • eligible employees working from home in 2020 due to the COVID-19 pandemic
  • eligible employees required to work from home

With this method:

  • you can claim the actual amounts you paid, supported by documents
  • you must have a completed and signed Form T2200S / Form T2200 from your employer

Source: Canada Revenue Agency.


To be eligible for the temporary method, Canadians must have worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020, and employers could not have reimbursed them for all of their home office expenses.

Tax Changes to Keep on Your Radar

Aside from keeping your ears to the ground for the upcoming 2021 Federal Budget (especially since the 2020 Budget was absent in light of the pandemic), there are also some noteworthy tax reforms effective this year, which could impact future plans:

  1. Employee Stock Option Limit – Draft legislation introduced in 2019 proposed to apply a $200,000 annual limit (per vesting year) on certain employee stock option grants that can access the preferential 50% tax rate. These changes were delayed, and are now due to take effect for options that are granted on or after July 1, 2021. However, a number of exclusions still exist, including for Canadian-controlled private corporations (CCPCs), as well as non-private companies that meet specific conditions, including start-ups and emerging businesses.
  2. Canada Training Credit – Also introduced in 2019, under this new program, eligible individuals will be able to accumulate $250 of refundable credits each year, up to a maximum of $5,000 in a lifetime for tuition and fees associated with eligible professional development courses taken in 2020 onward. To qualify, clients must be between the ages of 25-65, earning more than $10,000 and less than roughly $150,000 (the top of the third tax bracket) of income annually. Even if clients didn’t know about this opportunity last year, it could influence them to take a forward step towards career development, particularly given the added work-from-home flexibility now.
  3. New Trust Reporting Requirements – Due to come into effect for taxation years ending on or after December 31, 2021, most trusts will now have to report the identity of all its trustees, beneficiaries and settlors as well as the identity of each person who has the ability to exert control over major trustee decisions. The rules will also mandate an annual T3 filing obligation for many trusts that did not have to file previously, including those that did not have activity during the year, or no income tax payable, such as those created on an estate freeze, or holding a vacation property. PRO-TIP: if setting up a trust, the new requirements could be onerous and require planning ahead.

The 2020 Fall Economic Statement also noted several tax proposals to keep tabs on in the next few months, including targeting the unproductive use of domestic housing that is owned by non-residents through a national, tax-based measure. It also announced allocating additional resources to fund new initiatives targeting international tax evasion, and aggressive tax avoidance.

In addition, the Canadian government announced plans to implement a new tax on certain corporations providing digital services in Canada, effective January 1, 2022, with more details anticipated in the upcoming Federal Budget.

A Year-Round Discussion

With so many moving parts, tax planning is clearly not a one-time, value-add discussion. It’s a year-round process that requires consistent record keeping, while keeping track of any tax law changes that may open up new avenues for your clients.

From pension income splitting and deciding how much to contribute to RRSPs to the finer points of tax-loss harvesting, there are always conversations to be had and flexible options to consider. More often than not, there are savings strategies that clients may have missed, and alerting them could create valuable opportunities to reduce their tax bill going forward – strengthening your relationship in the process. The main question to ask is: What can your clients plan to do now to access [insert tax measure here] next year?

Taking Action:

As with all tax-related investment decisions, your clients should consult with a professional tax advisor to determine which unique strategies make sense for them.

BMO Private Wealth Disclosure:

BMO Private Wealth provides this publication for informational purposes only and it is not and should not be construed as professional advice to any individual. The information contained in this publication is based on material believed to be reliable at the time of publication, but BMO Private Wealth cannot guarantee the information is accurate or complete. Individuals should contact their BMO representative for professional advice regarding their personal circumstances and/or financial position. The comments included in this publication are not intended to be a definitive analysis of tax applicability or trust and estates law. The comments are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances.

BMO Private Wealth is a brand name for a business group consisting of Bank of Montreal and certain of its affiliates in providing private wealth management products and services. Not all products and services are offered by all legal entities within BMO Private Wealth. Banking services are offered through Bank of Montreal. Investment management, wealth planning, tax planning, philanthropy planning services are offered through BMO Nesbitt Burns Inc. and BMO Private Investment Counsel Inc. If you are already a client of BMO Nesbitt Burns Inc., please contact your Investment Advisor for more information. Estate, trust, and custodial services are offered through BMO Trust Company. BMO Private Wealth legal entities do not offer tax advice.

BMO Trust Company and BMO Bank of Montreal are Members of CDIC.

® Registered trademark of Bank of Montreal, used under license.

All rights are reserved. No part of this publication may be reproduced in any form, or referred to in any other publication, without the express written permission of BMO Private Wealth.

BMO Global Asset Management Disclosures:

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. Any statement that necessarily depends on future events may be a forward-looking statement. Past performance is no guarantee of future results. Investments should be evaluated according to the individual’s investment objectives. Professional advice should be obtained with respect to any circumstance.

BMO Global Asset Management is a brand name that comprises BMO Asset Management Inc., BMO Investments Inc., BMO Asset Management Corp., BMO Asset Management Limited and BMO’s specialized investment management firms.

BMO Mutual Funds are offered by BMO Investments Inc., a financial services firm and separate entity from Bank of Montreal. BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal.

®/TM Registered trade-marks/trade-mark of Bank of Montreal, used under licence.

Follow BMO

* As compared to an investment that generates an equivalent amount of interest income.

®/™Registered trademarks/trademark of Bank of Montreal, used under licence.

BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate. Certain of the products and services offered under the brand name, BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO).

BMO ETFs are managed and administered by BMO Asset Management Inc., an investment fund manager and portfolio manager and separate legal entity from Bank of Montreal. Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing.

Exchange traded funds are not guaranteed, their values change frequently and past performance may not be repeated.

BMO Mutual Funds are managed by BMO Investments Inc., which is an investment fund manager and a separate legal entity from Bank of Montreal.

Commissions, trailing commissions (if applicable), management fees and expenses all may be associated with mutual fund investments. Please read the ETF facts, fund facts or prospectus of the relevant mutual fund before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

For a summary of the risks of an investment in the BMO Mutual Funds, please see the specific risks set out in the prospectus. ETF Series of the BMO Mutual Funds trade like stocks, fluctuate in market value and may trade at a discount to their net asset value, which may increase the risk of loss. Distributions are not guaranteed and are subject to change and/or elimination.

BMO Life Assurance Company is the issuer of the BMO Segregated Funds individual variable insurance contract referred to in the Information Folder and the guarantor of any guarantee provisions therein. The BMO GIF Information Folder and Policy Provisions provide full details and govern in all cases. BMO GIF products are offered through BMO Life Assurance, a separate legal entity than BMO Global Asset Management and wholly owned by BMO Financial Group. Segregated funds are only available for sale by individuals with appropriate insurance licences and are not considered a mutual fund. Segregated fund fees are higher than mutual funds as they include insurance fees to provide for the guarantees on deposits at maturity or on death.

Legal and regulatory disclosures

This information is for Investment Advisors only. By accepting, you certify that you are an Investment Advisor. If you are NOT an Investment Advisor, please decline and view the content in the Investor or Institutional areas of the site. The website is for informational purposes only and is not intended to provide a complete description of BMO Global Asset Management’s products or services. Past performance is not indicative of future results. It should not be construed as investment advice or relied upon in making an investment decision. Products and services of BMO Global Asset Management are only offered in jurisdictions where they may be lawfully offered for sale. The information contained in this Website does not constitute an offer or solicitation by anyone to buy or sell any investment fund or other product, service or information to anyone in any jurisdiction in which an offer or solicitation is not authorized or cannot be legally made or to any person to whom it is unlawful to make an offer of solicitation. All products and services are subject to the terms of each and every applicable agreement. It is important to note that not all products, services and information are available in all jurisdictions outside Canada.