COVID-19, CRA & Revenu Québec, Getting Organized, Self-Employed, Tax News

What impact will the COVID-19 financial relief measures have on my self-employed tax return?

The reality is that we are not completely certain at this time what all the tax implications will be for all of the various benefits individuals and self-employed individuals are receiving during the 2020 COVID-19 pandemic.

What we do know is if the benefit says it is taxable for your business or is a taxable benefit to you as an individual, you will need to be prepared that you might have taxes to pay on that income in 2021 when filing your 2020 income tax returns.  For the tax filings of 2019 that we are all working on right now, none of these measures apply; the returns you will be submitting by June 15, 2020, as self-employed individuals, relate only to 2019 income, benefits, etc.  Payments however of any taxes that become payable due to this filing, are not due until September 1, 2020.  For more details on deadlines and C19 updates, check out our article HERE.

For next year, here is what the CRA website, and legislation, is telling us right now, as of April 15, 2020

Self-Employed Individuals or Businesses with Employees:

CEWS and TWS

“The usual treatment of tax credits and other benefits provided by the government applies. As a consequence, the wage subsidy received by an employer is considered government assistance and is included in the employer’s taxable income.”

Though we are not yet able to apply for the CEWS benefit, it is important that  you understand the tax implications of being successful in receiving this subsidy.  What does this mean? The subsidy money you are given will need to be noted in your bookkeeping records for your business as income, usually as an “other income” account.  When you go to prepare your T2125 (Statement of Business Activities), this income will be a part of your business income and reflected on this report.

For the TWS, the original Temporary Wage Subsidy, it will be reflected in the same way, on your T2125.  This wage subsidy is a reduction in what you send to the government for the income taxes your business withheld from your employees.  Though nothing changes for your employees in terms of their deductions, the amount you didn’t send to the CRA for your source remittance becomes income for your business.

For benefits like these, this is where your business accounting records are going to be incredibly important, and will need to be maintained throughout the year accurately.

For more information on CEWS, read our blog HERE.

For more information on TWS, read our blog HERE.

Self-Employed Individuals:

CERB

“These benefits are taxable. You will need to report any payments received on next year’s tax filing. An information slip will be made available for the 2020 tax year in My Account under Tax Information Slips (T4 and more).”

What does this mean?  It is likely you will be issued a T form of some type that records the amount paid to you so that you will know what boxes to report it in on your tax return as income.

For more information on this program, read our blog HERE

 

As with any income tax year the amount of income tax we pay as, self-employed individuals, is dependent upon a few things:

  • Our taxable income (employment, investment, business, etc…) that determines what tax bracket we fall into
  • The amount of deductions that can reduce that income, or the amount of non-refundable tax credits we can use to reduce the taxes we pay on that income.  Given that the taxable income is what determines our tax rate, it is best to reduce this as much as possible through allowable deductions, such as RRSPs, Childcare, etc.
  • Self-Employed Individual income tax rates dictate how much we will be taxed on our taxable income.  Tax rates for 2020 are:
    • 15% on the first $48,535 of taxable income, plus
    • 20.5% on the next $48,534 of taxable income (on the portion of taxable income over $48,535 up to $97,069), plus
    • 26% on the next $53,404 of taxable income (on the portion of taxable income over $97,069 up to $150,473), plus
    • 29% on the next $63,895 of taxable income (on the portion of taxable income over $150,473 up to $214,368), plus
    • 33% of taxable income over $214,368
  • When we can’t reduce the taxable income, then we focus on reducing the tax we pay on that income.  When you know what you can maximize to bring this amount down, the better off you’ll be to deal with a possible increase in taxable income due to the financial relief measures.  This is where all of our non-refundable tax credits come into play, and we get to claim 15% of these NRTCs federally, such as:
    • Basic Personal Amount
    • Age Amount
    • Disability Tax Credit
    • Tuition
    • Medical Expenses

As a Self-Employed Individual you file with your personal taxes, this means there are many other measures that might have applied to you and can impact your income taxes. Click HERE to read our similar article focused on individuals and the impact on taxes from these measures.

References:

CRA: Canada child benefit

CRA: GST/HST tax credit

National Student Loan Centre

 

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