Filing taxes often means a tax refund for many Canadians, but for the millions who received emergency benefits last year, this spring might be different.
The Canada Emergency Response Benefit and the Canadian Emergency Student Benefit — both enacted in 2020 to support Canadians during the recession sparked by Covid-19 measures — were considered taxable income, but no tax was deducted when they were paid out. As a result, many Canadians may find themselves with a bill instead of a refund cheque for the first time.
Tannis Dawson, vice-president of high net worth planning at TD Wealth in Winnipeg, said it’s critical to file on time, even if you owe money and can’t pay it immediately, to avoid a late-filing penalty.
“We do have some options for them for tax owing, but we don’t for penalties,” she said.
And depending on your circumstances, Dawson said Ottawa has extended the deadline to pay your tax bill if you received money from one of the many emergency benefit programs to help people during the pandemic last year.
The Canada Revenue Agency (CRA) has said that once you’ve filed your 2020 tax return, if you received emergency benefits and had total taxable income of less than $75,000 last year you will not have to pay interest on your outstanding tax bill until April 30, 2022.
Dawson said if you owe money and don’t have the cash to pay the bill today that gives you some breathing room, but you’d better make a plan to pay the bill when the time comes or find yourself in a difficult situation next year.
“If you qualify for the relief, don’t wait a year before you make the payments. Try paying it off as soon as you can,” she said.
Dawson added that the programs announced last fall including the Canada Recovery Benefit, Canada Recovery Caregiving Benefit and Canada Recovery Sickness Benefit, do have some tax withheld when they were paid out, but it might not have been enough, so if you’re still receiving benefits under those programs you might owe tax again next April when you file your 2021 tax return.
If you don’t qualify for the interest-free extension, Dino Infanti, partner and national leader, enterprise tax, at KPMG, said you should still file your tax return on time even if you don’t have the cash on hand to pay the bill to avoid the late filing penalty in addition to the interest.
The late penalty is 5% of your 2020 balance owing, plus 1% for each full month your return was filed after April 30, to a maximum of 12 months. The penalty may be even higher if you were charged the late penalty on your return for 2017, 2018 or 2019.
Infanti said once you’ve filed your taxes you can arrange a payment plan with CRA for your outstanding balance.
“The best advice is to get on a call with them, explain the situation,” he said.
Infanti said an individual will need to supply some documentation to support the fact that they are unable to pay immediately, such as a budget with their income, expenses and net worth, along with their plan to pay.
“The CRA also wants to make sure there’s substance to this particular request being made,” Infanti said.
Whatever you do, don’t ignore the CRA.
“The worst thing an individual can do is just ignore the revenue agency, ignore their demands, ignore correspondence,” Infanti said.
“You don’t really want to go down that road.”