Halloween plays an important role in the lives of many tax professionals as it signals there are only two months left for some year-end tax planning. But year-end tax planning need not be a scary affair if you focus on a couple of tips unique to 2020, one for individuals who received COVID-19 government benefits, and another for persons living with a disability.
Individuals affected by COVID-19
These end-of-year tax tips will help those who received CERB and other pandemic benefits
The government introduced a number of measures in 2020 to assist individuals who have been affected by COVID-19. Here are some year-end considerations to take into mind if you’ve received any of these benefits this year.
Canada Emergency Response Benefit (CERB)
If you lost your job, were working reduced hours due to the COVID-19 pandemic, or were sick, quarantined or forced to stay home to care for children or other relatives in 2020, the CERB provided income support of $500 per week (or $2,000 per four-week eligibility period) for up to 28 weeks, with a maximum claim of $14,000. The CERB was available until Sept. 26, 2020 and the last date to apply, retroactively, is Dec. 2, 2020.
The government will be issuing you a T4A tax reporting slip for 2020 showing the total amount of CERB you received, and you must report this amount as income when filing your 2020 income tax return. No tax was deducted at source from your CERB payments, so you may need to pay tax on the CERB amounts you received when you file your 2020 income tax return. The amount of tax that you will owe on your CERB will depend on your 2020 marginal tax rate, taking into account all other income you may have earned in 2020. Before year end, you may wish to estimate your total income from all sources, and estimate any taxes owing, perhaps by using an online Canadian tax calculator, so you can set aside funds to pay the taxes you may owe on the CERB come tax-filing season next April.
Canada Recovery Benefit (CRB)
If you are not eligible for EI, perhaps because you are self-employed, you may qualify for the CRB, which began on Sept. 27, 2020 and runs until Sept. 25, 2021. You can receive a taxable benefit amount of $500 per week, for up to 26 weeks. You are required to apply after every two-week period for which you need support, and the deadline for applying for any two-week period is 60 days after the end of that period.
While the government has indicated that, unlike the CERB, it will be withholding 10 per cent in taxes on any CRB payments, this may be insufficient to cover your tax liability on the CRB, which will be taxable at your 2020 marginal tax rates. In addition, if your total income (excluding the CRB) was over $38,000 in 2020, you may be required to pay back the CRB at a rate of $0.50 for each dollar of CRB received for income over this amount.
As we approach year end, it’s a good idea to estimate any additional tax you may owe on the CRB as well as plan for potential repayment of the CRB if you estimate that your 2020 income could be over $38,000 this year.
Canada Recovery Sickness Benefit (CRSB)
If you are (self-)employed and don’t have a paid sick-leave program, the CRSB may provide a $500 per week taxable benefit, for up to two weeks, if you cannot work either because you are ill or because you must self-isolate due to COVID-19, or you are more susceptible to COVID-19. This benefit is available from Sept. 27, 2020 to Sept. 25, 2021. Applications can be made after the specific claim week ends.
The deadline for applying for any one-week period is 60 days after the end of that period.
Like the CRB, the amount is taxable and is subject to 10 per cent withholding tax, so you may end up owing some extra tax on the CRSB for 2020 come next spring.
Canada Recovery Caregiving Benefit (CRCB)
The CRCB provides a $500 per week taxable benefit, for up to 26 weeks, if you miss work to care for a family member in certain circumstances due to COVID-19. This benefit is also available from Sept. 27, 2020 to Sept. 25, 2021. Similar to the CRSB, applications can be made after the particular claim period ends and the deadline for applying for any one-week period is 60 days after the end of that period.
As with the CRB and the CRSB, the CRCB is taxable and subject to the 10 per cent withholding tax, which may be insufficient to cover taxes owing on the benefit you receive. Accordingly, if you receive the CRCB, you may want to set aside some funds at year end to cover any additional tax that could be owing next April.
One-time COVID-19 payment to persons with disabilities
A one-time, non-taxable payment of up to $600 is available to eligible individuals with disabilities, in recognition of the extraordinary expenses incurred by these individuals during the COVID-19 pandemic. You should automatically receive this one-time payment if you qualify for the disability tax credit or were a beneficiary (as of July 1, 2020) of the Canada Pension Plan Disability, Quebec Pension Plan Disability Pension, or certain disability supports provided by Veterans Affairs Canada.
If you have yet to apply for the DTC to be eligible for the one-time payment, make sure to submit your application by the newly extended deadline of Dec. 31, 2020. To get your payment, it’s also important to ensure the government has your current personal information, including your marital status, direct deposit details and correct mailing address.
If the CRA was able to confirm your eligibility for the payment by Sept. 30, you should automatically receive the payment on Oct. 30; otherwise, your payment may be delayed until January 2021 (if you are approved by Nov. 30) or spring 2021 (if you are confirmed to be eligible by the end of Feb. 2021).