The Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB) lent a hand to the many workers who lost their jobs during the height of the COVID-19 pandemic. In fact, a lot of people applied for these benefits because of lockdowns and sudden closures of non-essential businesses. Keep in mind that these benefits are taxable. Here are some tips to help you prepare for tax time.
“When we receive our pay as a salaried employee, taxes are deducted directly based on that salary. At the end of the year, we often paid enough taxes, and sometimes we even get a return,” says Angela Iermieri, a financial planner at Desjardins.
According to the federal tax schedule, the basic personal amount was set at $13,229 in 2020. So if you don’t have any other tax credits and your taxable income is higher than $13,229, you’ll have to pay taxes.
I received CERB payments. Will I have to pay taxes?
“The CERB is a fixed amount on which no tax has been deducted. The payment amount doesn’t take into account income tax, as is the case for pay deductions. So you need to expect to pay taxes on it,” says Angela Iermieri.
CERB payments were $2,000 per 4-week period ($500 per week), spread out between March 14 and September 27, 2020.
This means that if you received $14,000 in benefits (that is, you got CERB payments during the 7 consecutive eligible periods), or if you received the benefit during a certain period and had another source of income for the rest of 2020, it’s very likely that you’ll need to pay taxes.
How much should I expect to pay?
To get an idea of how much to set aside, you need to calculate your annual income. Add up all the income you received during the year, such as your:
- Benefits (CERB, CRB and EI)
- Dividends and investment income
- RRSP withdrawals
If you received tax refunds in previous years, you may not receive one for 2020, because of the CERB amount you received.
What should I do if I received the benefit and wasn’t eligible for it?
If your situation has changed since you first applied for it, or you made an error or got several payments by mistake, it’s best to start making repayments as soon as possible. To see if you need to make any CERB repayments, read the information provided by the Government of Canada.
Since the CERB is taxable, you’ll receive a T4A slip with the amounts you received. Only those who haven’t paid back the CERB amount by December 31, 2020, will be notified.
I received CRB payments. Will I have to pay taxes?
Unlike the CERB and the Canada Emergency Student Benefit (CESB), 10% tax is withheld at source for CRB payments.
However, depending on your taxable income, this percentage may not be enough and you might owe tax.
If you received CRB payments and your net income at the federal level (excluding the CRB) was over $38,000, you’ll have to reimburse $0.50 of the benefit for every dollar of net income you earned above $38,000, up to the total CRB amount you received during the year. You’ll need to make the repayment when you file your tax return. The repaid amount will not be taxable.
CRB payments were $1,000 per 2-week period ($900 after taxes withheld), spread out between September 27 and December 31, 2020.
This means that if you received $6,000 in benefits in 2020 (that is, you got CRB payments during the 6 consecutive eligible periods), or if you received the benefit during a certain period and had another source of income for the rest of 2020, it’s very likely that you’ll need to pay taxes.
The same applies if you received the Canada Recovery Caregiving Benefit (CRCB) or the Canada Recovery Sickness Benefit (CRSB).
To avoid any unpleasant surprises and get a clearer picture, Angela Iermieri recommends asking a professional (like an accountant or even a tax expert) for help with your 2020 tax return. They’ll be able to advise you on your deductible expenses or eligible tax credits.
Start saving now
Once you have an estimated amount, you should start making your payment plan. Ideally, you should set aside a minimum amount on a regular basis. “By saving $20 to $30 per week, you can quickly save up to $600 in just a few months and pay your taxes when the time comes,” explains Angela, who recommends starting to save as soon as your financial situation improves.
If you’re nearing the repayment deadline: “Dip into a savings fund or a TFSA for a short-term goal that was delayed (like a trip). If you need to, use your emergency fund. It’s better to avoid withdrawing from your RRSPs since that’s taxable,” adds the financial planner.
Staying informed is key
You should regularly check for updates to stay informed about the latest government measures for 2021.
Government relief measures
For individuals: If you received COVID 19 government benefits (like CERB and CRB) but are unable to pay your tax balance by April 30, 2021, you won’t have to pay interest on the unpaid balance until April 2022. To see the eligibility criteria, visit the website.
For self-employed workers: If your net self-employment income was less than $5,000 and you applied for the CERB, you will not be required to repay the CERB, as long as your gross self-employment income was at least $5,000 and you met all the other eligibility criteria.
You can contact the Canadian Revenue Agency at any time to see if you can arrange a repayment plan.
A personal finance advisor can help you set up saving and investment strategies.
For more details about the CERB:
For more details about the CRB: