The Canada Revenue Agency (CRA) will withhold 10% tax at source from amounts distributed through three new Covid-19 recovery benefits announced by the federal government in September.
Amounts received through the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB) and the Canada Recovery Caregiving Benefit (CRCB) are taxable, meaning they must be included in income for the year when recipients file their tax returns.
“The 10% tax withheld at source may not be all the tax you need to pay,” indicates the CRA in its guidance for the three programs. “When you complete your personal income tax return, you may need to pay more (or less), depending on how much income you earned.”
Applications for the caregiving and sickness benefits open today, while applications for the CRB begin Oct. 12.
The three new programs were introduced to replace the Canada Emergency Response Benefit (CERB), which came to an end last month. Amounts received through CERB are taxable, but the CRA did not withhold tax at source for the program.
The government’s decision to withhold tax from the new benefits makes sense, says Jamie Golombek, managing director, tax and estate planning with CIBC Private Wealth Management in Toronto.
“This is consistent with most employment income, which these benefits are supposed to replace, wherein tax is paid when funds are paid to recipients,” he said.
The CRB provides income support to employed and self-employed individuals who are directly affected by Covid-19, but are not entitled to employment insurance benefits. Canadians eligible for the CRB can receive $1,000 — $900 after tax withheld — for a two-week period. Canadians can apply up to a total of 13 eligibility periods, or 26 weeks, between Sept. 27, 2020 and Sept. 25, 2021.
Canadians who receive CRB may also earn employment or self-employment income while doing so, but will have to reimburse $0.50 of the CRB for every dollar of net income above $38,000 earned in the calendar year.
The CRSB provides income support to employed and self-employed individuals who are unable to work because they’re sick or need to self-isolate due to Covid-19, or have an underlying health condition that puts them at greater risk of getting Covid-19. Canadians eligible for the CRSB can receive $500 ($450 after tax withheld) for a one-week period. Canadians may apply up to a total of two weeks between Sept. 27, 2020 and Sept. 25, 2021.
The CRCB provides income support to employed and self-employed individuals who are unable to work because they must care for their child under 12 years old or a family member who needs supervised care. If a Canadian is eligible for the CRCB, their household can receive $500 ($450 after taxes withheld) for each one-week period. Canadians may apply up to a total of 26 weeks between Sept. 27, 2020 and Sept. 25, 2021.