As we approach the last couple months of 2020, now is a good time to reconnect with your clients to discuss some year-end tax tips and, in particular, to discuss whether your clients have properly prepared for the tax consequences of having received various Covid-19–related government benefits.
Canada Emergency Response Benefit (CERB)
For individuals who lost their 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 September 26, 2020 and the last date to apply retroactively is December 2, 2020.
The government will be issuing a T4A tax reporting slip for 2020 showing the total amount of CERB an individual received, and this amount must be reported as income when filing the 2020 income tax return. No tax was deducted at source from CERB payments, so some clients may need to pay tax on the CERB amounts they received when they file their 2020 income tax return. The amount of tax they will owe will depend on their 2020 marginal tax rate, taking into account all other income they may have earned in 2020.
Before year end, you may wish to remind clients to estimate their total income from all sources so they can set aside funds to pay any potential taxes they may owe on the CERB come tax-filing season next April.
Canada Recovery Benefit (CRB)
If you have clients who are self-employed or are not otherwise eligible for EI, they may qualify for the CRB, which began on September 27, 2020 and runs until September 25, 2021. Individuals can receive a taxable benefit amount of $500 per week for up to 26 weeks. They are required to apply after every two-week period for which they 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% in taxes on any CRB payments, this may be insufficient to cover the tax liability on the CRB, which will be taxable at clients’ 2020 marginal tax rates. In addition, if the recipient’s total income (excluding the CRB) was over $38,000 in 2020, they 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 for clients to estimate any additional tax they may owe on the CRB as well as plan for potential repayment of the CRB if they estimate that their 2020 income could be over $38,000 this year.
Canada Recovery Sickness Benefit (CRSB)
If your client is (self-)employed and doesn’t have a paid sick leave program, the CRSB may provide a $500-per-week taxable benefit for up to two weeks if they cannot work either because they are ill or because they must self-isolate due to Covid-19, or they are more susceptible to Covid-19. This benefit is available from September 27, 2020 to September 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 a 10% withholding tax, so clients could end up owing some extra tax on the CRSB for 2020 come next spring.
Canada Recovery Caregiving Benefit (CRCB)
Finally, the CRCB provides a $500-per-week taxable benefit for up to 26 weeks if an individual is required to miss work to care for a family member in certain circumstances due to Covid-19. This benefit is also available from September 27, 2020 to September 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 then end of that period.
As with the CRB and the CRSB, the CRCB is taxable and subject to the 10% withholding tax, which may be insufficient to cover taxes owing on the benefit. Accordingly, if clients have received the CRCB, you may wish to remind them to set aside some funds at year end to cover any additional tax that could be owing next April.