TurboTax wants to ensure accuracy with the information we have provided in this article, all content will be updated as we learn more from the Canada Revenue Agency and the Government of Canada.
CRA implemented many COVID response benefits and programs to help individuals, self-employed, small, and large business owners. You need to be prepared that you might have taxes to pay on the COVID benefits income received when filing your 2020 income tax returns.
As an individual or a small business owner, you will need to be prepared that you might need to pay tax on the benefit income in 2021 when filing your 2020 income tax returns.
For Individuals and your personal taxes:
CERB and CRB
“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, T4A, and T4E).”
What does this mean? You will be issued a T4A or a T4E form that records the amount paid to you from the Canada Emergency Response Benefit program CERB and/or the Canada Response Benefit program CRB so that you will know what boxes to report it in on your tax return as income.
One-Time Additional Payments for CCB or GST/HST tax credit
“It was a tax-free monthly payment made to eligible families to help with the cost of raising children under 18 years of age.” No tax implications on this one-time payment.
“The goods and services tax/harmonized sales tax (GST/HST) credit was a tax-free quarterly payment that helps individuals and families with low and modest incomes offset all or part of the GST or HST that they pay”. Like CCB above, there is no tax implications on this payment.
For more information check our blog on the One-Time extra payments.
Student Loan Moratorium
If your student loan interest payments have been suspended, then you will likely not have as much allowable student loan interest to claim on your next income tax return, provided it is a qualifying student loan as per the CRA guidelines.
“Deferred payments are added to the outstanding principal balance and subsequently repaid throughout the life of the mortgage.” The mortgage support or assistance that Canadian banks have agreed to is managed specifically by your lender. Any deferral of payments that you receive is between you and your lender. The only impact on your income taxes might be experienced by self-employed individuals who are able to claim business use of home expenses on their T2125 form.
RRIF Withdrawal Reduction
Since the minimum withdrawal from the RRIF has been reduced by 25% for 2020, this means if you take less money from your RRIF you will pay less tax, simply because money in your RRIF is only taxable when the money is paid out of the fund. The rate of the taxes doesn’t change, it is only because you take less, do you pay less.
For Individuals 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.”
It is important that you understand the tax implications of being successful in receiving the Canada Emergency Wage Subsidy CEWS. 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 Temporary Wage Subsidy TWS, 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.
As with any income tax year the amount of income tax we pay as, 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.
- Individual income tax rates dictate how much we will be taxed on our taxable income.
- 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.
Are you a Self-Employed Individual and have your own business? Click HERE to read our similar article focused just on you.
We’re Here to Support You
If the thought of trying to figure out all of your deductions or tax credits makes you a little unsure…we’re here to help. To make tax season as simple as possible, TurboTax has created solutions that work for all situations and preferences, including:
- TurboTax Online, a DIY solution;
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No matter your income or the complexity of your return, you have an expert in your corner with TurboTax.
For more details on income support and other benefits as part of the Federal Government’s Economic Response Plan for COVID-19, visit this TurboTax link on all COVID-19 response measures.
See also our COVID-19: Tax Info Centre, from our TurboTax Support team, answering many FAQs on this topic and more
Accounting educator, business strategist, and advisor.
Turbo Tax Canada blog editor and writer.
Susan has been an accounting professional for over 20 years and has been working with businesses and individuals and their taxes for the past 13. Education is a passion for Susan, and when not writing or talking about tax for TurboTax Canada, she can be found speaking at events, teaching at Mohawk College, and working with many businesses, bookkeepers and accounting firms as part of her education offerings and her Find Our Bookkeeper™ recruitment program. Susan is known to be approachable but pulls no punches when it comes to the reality of business finance, taxes, and the importance of education.