If there’s one thing that many people have agreed on lately, it’s how unique 2020 has been. The COVID-19 pandemic has affected Canadians in different ways. Some have seen their health impacted, others have had to change their consumption habits to better prepare for the future, while many have faced difficulties due to loss of income. To help those directly affected by the pandemic, the Government of Canada has implemented programs like the Canada Emergency Response Benefit, better known as the CERB, which has provided $81.64 billion to the 8.90 million Canadians who have requested it1 in recent months. If you’ve gotten the CERB this year, there are a few important things you should know about its tax impact.
First, the CERB is a taxable benefit, and these taxes were not deducted from the amounts you received from the government. Did you put aside a certain amount of these payments? If so, congratulations! If not, it’s time to prepare to avoid an unpleasant surprise and a large bill you may have to pay when you fill out your 2020 tax return, especially if no relief is available.
Here’s how the CERB and your income can affect your savings:
The amount you will have to repay to the Canada Revenue Agency (CRA) next spring depends on your situation and your earned income in 2020. If you’re a student or an employee who earned less than the minimum taxable income in 2020, you won’t have to pay taxes. However, if you have had annual taxable income, it’s important to estimate the amount of taxes you will have to pay, taking into consideration your income before the CERB, the CERB payments and an estimate of your income by the end of the year. For example, if you earned $15,000 and received $14,000 in CERB payments in 2020, at a marginal tax rate of 27.5%, this could represent $3,850 in taxes. “If your employer made source deductions at the beginning of the year, this would obviously reduce this amount,” said Pierre-Raphaël Comeau - Expert Advisor, Wealth Management and LBC Financial Services Financial Planner. It’s therefore important to put money aside. Since everyone’s situation is different, feel free to talk to your accountant or advisor to get a better idea of how much you’ll likely have to pay in a few months.
The good news is that there are several solutions available to help you avoid unexpected financial difficulties:
The eligibility period for the CERB ended on September 262, but other government programs have replaced it to support those whose jobs have been affected by COVID-19, such as the new Employment Insurance benefits, the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB) or the Canada Recovery Caregiving Benefit (CRCB), which will help many Canadians overcome the financial difficulties caused by this second wave of the pandemic. Even if source deductions are made from the amounts received from these benefits, they may not be enough, depending on how much income you’ll have earned by the end of 2020. Therefore, it's very important to manage your finances well so that you don’t have any surprises next spring. Your Laurentian Bank of Canada advisor is there to discuss this with you and offer advice.
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