Did you receive a Canada Emergency Response Benefit (CERB) payment in 2020? These federal relief payments were sent in 2020 to help eligible recipients economically affected by the COVID-19 pandemic.
Like Employment Insurance (EI) benefits, these amounts are treated as ordinary income by the CRA and MRQ. The amount of taxes you will owe will depend on your other sources of income, your deductions and credits and your marginal tax rate. Ottawa did not deduct any tax when they sent the money out to Canadians, so if you do owe tax, you will not have any prepaid taxes to count on to reduce your balance owing.
The plan pays $500 a week for up to 28 weeks for a maximum amount of $14,000. The amount you can earn before you start paying federal income tax, known as the federal basic personal amount, is $13,229 for 2020. As a result, if you received the maximum CERB benefit and had no other income and no other tax credits, you will end up owing taxes to Ottawa.
Of course, if the CRA determines that you were ineligible for some or all of the payments, they will have to be reimbursed. You were only eligible if you had stopped working because of COVID-19 and, upon n submitting your first claim, you had not earned more than $1,000 in employment and/or self-employment income for a period of at least 14 or more consecutive days within the four-week benefit period of your claim.
We recommend reviewing your tax situation prior to March 1st, 2021, to determine if:
1. You will be required to reimburse the government for any CERB payments you were not entitled to receive
2. You do indeed owe taxes. If so, you may be able to reduce your taxes with a timely RRSP contribution.
The deadline for filing taxes is typically April 30th following the end of the tax year. Last year, due to the pandemic, the deadline was extended to September 30th. While it is possible that this occurs once again, taxpayers shouldn’t count on it, so as to avoid any interest and penalty charges the CRA and MRQ may impose on late filers.
Thanks for the info. Very interesting.