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OTTAWA – Canada Emergency Response Benefit was a financial lifeline for many when COVID-19 forced businesses to close and brought the economy to a sharp halt in the spring.
And while the $ 500-a-week checks have helped millions of Canadians keep paying their bills and shopping for groceries, many probably haven’t thought much about how the benefits would affect their taxes.
But as 2020 draws to a close, tax experts say now is the time to check and see if you may owe income tax on the emergency benefit money you received this year or face an unpleasant surprise at the time of the taxes.
John Waters, director of tax advisory services at BMO Private Wealth, says it’s important for people to understand that CERB payments will need to be included in taxable income.
“The key thing here is, of course, what your marginal tax rate is and what other sources of income you have and that will determine what tax will be owed,” Waters says.
CERB was designed to help those who lost their jobs, got sick or were forced to quarantine or stay home to care for children.
If you have received CERB benefits, the government will issue you a tax bulletin outlining the amount you will need to include as income for your 2020 tax return.
The plan pays $ 500 per week for up to 28 weeks for a maximum amount of $ 14,000. The amount you received is considered taxable income, but Ottawa did not deduct any taxes when it sent the money to Canadians.
The basic federal personal amount – the amount you can earn before you start paying federal income tax – is $ 13,229 for 2020.
Waters said this means that if you have received the maximum CERB benefit and have had no other income and no other tax credit, you will end up owing Ottawa a small sum.
“The main thing is probably to do some sort of pro forma or estimate of your tax situation for 2020 … and get an idea of what kind of tax you might owe based on all the sources of income you have obtained and maybe some deductions or credits, “he said.
Waters also said it would be a good idea to look back and verify that you are eligible for any CERB payments you have received.
Jamie Golombek, chief executive, tax and inheritance planning with CIBC, says the amount you may owe depends on how much other income you’ve earned this year before or after receiving your CERB payments and what other tax deductions and credits you might to have.
“If you had other income in January, February or early March or went back to work or worked part-time or had a little income, then you owe some money,” he says.
Golombek says it’s best to find out now if you might owe money so you have time to put the money aside rather than rushing to April, when your tax return is due.
“Now you have a really good sense of where you’re going to end up,” he said.
“If you’re short, now may be the time to set aside an extra $ 25, $ 30, $ 40 a week to be able to pay those taxes next spring.”
Golombek noted that the government is withholding withholding tax on new benefit programs that replaced the CERB program this fall, but added again may not be enough.
“The withholding tax on those is only 10%, so again it may not be enough for many Canadians, so they may want to plan for that too, so it’s no surprise,” he said.
This report by The Canadian Press was first published on November 26, 2020.
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