7 Key Tax Tips: What’s New in 2020 for Proprietors and Farmers?

Be sure to ask your self-employed clients for the details behind all the new tax provisions they may need to address on their 2020 tax returns. Here are seven issues you will want to discuss:

1. Professionals.  Work in Progress Phase Out. For tax years beginning after March 21, 2017, professionals may no longer exclude from income their work-in-progress and this year is the second last year of the transitional phase-out.  For each fiscal year ending after March 21, 2017, the maximum exclusion for work in progress is:

• First year (2018 for calendar year proprietors): 80%
• Second year (2019 for calendar year proprietors): 60%
• Third year (2020 for calendar year proprietors): 40%
• Fourth year (2021 for calendar year proprietors): 20%
• Subsequent years: none.

These professionals include accountants, dentists, lawyers, medical doctors, veterinarians, and chiropractors. 

2. CPP Rate Hikes. You may be owing more this year because of Canada Pension Plan rates increases:  from 5.1% to 5.25% for 2020 and 5.45% for 2021.  Self-employed taxpayers will have to contribute twice this amount.

3. Self Employed and the EI.  Self-employed individuals who enrol in the EI program will pay a maximum of $856.36 in premiums for 2020 ($889.54 for 2021).  The employer's EI rate for 2020 is 2.212% (and this rate will also apply to 2021 and 2022).  The EI maximum insurable earnings for 2020 is $54,200 ($56,300 for 2021).  The maximum EI premiums payable by the employer for an employee is $1,198.90 for 2020 ($1,245.36 for 2021).

4. CEWS.  Government assistance received, such as the Canada Emergency Wage Subsidy, must either be included in gross income, or the claim for the expense being offset must be reduced by the amount of assistance received.

5. CEBA.  In 2020, the Canada Emergency Benefit Account (CEBA) provided two loans to businesses; one for $40,000; the second for $20,000.   In each case up to $10,000 is forgivable, as long as the balance is repaid on December 31, 2022. However, the forgivable amount will be considered to be business income in which the loan is received.

6. CCA Rule changes.  Don’t forget newly introduced depreciation issues on Capital Cost Allowance (CCA) claims, including zero emission vehicles.

7. Drought Provisions. The prescribed drought regions for 2020 include much of the Gaspé peninsula, all of New Brunswick and Prince Edward Island and part of Nova Scotia.  See the map at 2020 Livestock Tax Deferral – Initial Prescribed Regions - Agriculture and Agri-Food Canada (AAFC). Given the dry state of affairs in Canada in 2021 so far, this is important information to pass along in preparation of the 2021 tax filing year as well.

Deferrals for farmers in drought, flood, or excess moisture regions (prescribed in Reg. 7305) may defer a portion of the income from drought-induced sales of breeding animals. The amount of deferral depends on the percentage of reduction of the breeding herd:

• If the breeding herd is reduced by at least 15%, but less than 30%, then 30% of the proceeds (net of purchases) may be deducted in the year of sale
• If the breeding herd is reduced by 30% or more, then 90% of the net proceeds may be deducted in the year of sale.

The deferred amount must be included in income by the first taxation year after the farm is no longer in a prescribed drought region. 

Additional educational resources: Get up to speed on the tax changes for the self-employed and enhance or earn new credentials as an MFA™- Business Services Specialist.

Also, enhance your credentials by drilling down on business filing profiles, including farmers, by taking Knowledge Bureau’s Filing Proprietorship Returns Certificate Course.