Q: I appear to have some additional money this yr as a result of I’ve spent virtually nothing on present trade, get-togethers with mates and travelling to see household for the vacations. However I worry I’m going to owe earnings tax for the CERB I obtained earlier this yr. I used to be working till COVID-19 put my Waterdown employer briefly out of enterprise. Fortunately, they reopened and I used to be invited again later within the yr, so I solely collected $8,000 of the CERB. How can I be certain I’ll be OK for taxes?
A: First, a bit earnings tax refresher. The federal authorities typically requires that employers withhold earnings tax and different deductions, like CPP (Canada Pension Plan), proper off your paycheque. The quantity withheld is predicated in your anticipated gross earnings from that employer for the yr.
That is usually excellent news and unhealthy information. The excellent news is the remitted taxes act as a prepayment towards your whole owing for that tax yr, so that you don’t need to give you all of the taxes owing at one time. The CRA (Canada Income Company) is aware of that this can be a good thought for the overwhelming majority of Canadians; in any other case, they might be in a monetary pickle come April of yearly.
The unhealthy information is that the federal authorities has your hard-earned cash of their pocket, lengthy earlier than it’s really due. And, go determine, they don’t pay any curiosity on these pay as you go taxes both.
Now, let’s do a fast overview of the Canada Emergency Response Profit (CERB), which the federal authorities established to offer monetary assist to working Canadians who have been negatively affected by COVID-19. Eligible people have been in a position to obtain $500 per week, for as much as 28 weeks, for a most whole of $14,000.
The CERB is taxable however, not like a paycheque out of your employer, no earnings tax was withheld earlier than it was paid out. This will have helped recipients with a bit of additional money when it was actually wanted; nevertheless, you’ll nonetheless must report the CERB earnings and pay the earnings taxes owing once you file your 2020 tax return, by the April 30, 2021, deadline. The CERB ($8,000 in your case) will get added to all different earnings that you just earned in 2020, then the entire tax is calculated. This determines if there’s a stability owing, or when you had an excessive amount of tax withheld and are in a refund place.
I’m going to imagine that your employer withheld a enough quantity of tax for the earnings that you just obtained from them. In fact, they wouldn’t know when you had one other job, or when you obtained the CERB, and even when you had any funding earnings. If that’s the case, they might not have withheld sufficient to account in your whole earnings for 2020. If the remainder of your 2020 earnings was sufficiently excessive, you possibly can owe as a lot as 53.53 per cent (or about $4,300) on the $8,000 of CERB earnings.
Alternatively, the fundamental private quantity permits earnings to be non-taxable as much as roughly $13,000. Though, I believe this received’t apply to you when you had employment, each earlier than and after the COVID layoff.
I suggest that in early 2021 — when you obtain your whole 2020 tax slips — you ask your tax preparer that can assist you decide your earnings taxes for 2020. If you’re in a tax-owing place, you should utilize a few of the additional money that you just didn’t spend on vacation presents, travelling and get-togethers with household and mates for this precise objective.
This pre-emptive technique will stop an undesirable tax shock once you ultimately file your 2020 tax return. We now have all had sufficient unwelcome surprises in 2020 — you positive don’t want one other one.