Jan. 14, 2021
The Canada Emergency Response Benefit (CERB) has been a lifeline to millions of Canadians as they navigated the turbulence of the COVID-19 pandemic.
As we are all aware, many businesses were forced to close down or vastly reduce their operations in 2020 to comply with their regional or local public health orders to reduce the spread of this virus. This situation directly led to millions of Canadians losing their jobs or being furloughed until their employers were able to open up again.
CERB was introduced to provide financial support to both employed and self-employed Canadians whose income was directly affected by COVID-19. Eligible applicants for CERB could receive $2000 for every qualifying 4-week period ($500 per week) between March 15 and September 26, 2020.
This was a welcome program for many Canadians during this tumultuous time, providing income to 8.9 million individuals across the country when they could not work through no fault of their own.
With tax season on the horizon, now is an excellent time to take stock of how these benefits will affect your taxes if you haven’t already.
CERB is a taxable benefit, so it will count towards the individual’s income for the year when they file their 2020 tax return. However, unlike most people’s pay from their employers, the income tax for these benefits was not withheld when they were paid out, so this could make for a very unwelcome surprise at tax time.
Calculating the tax owing on the CERB benefits can get a little tricky because all of a person’s income from before and after they received these benefits also needs to be accounted for, in order to add up the individual’s total income for the year. Once a person has this figure, there are free online income tax calculators for 2020 that will help them work out how much federal and provincial tax they will owe, such as the one at Wealthsimple (https://www.wealthsimple.com/en-ca/tool/tax-calculator/). Once the person knows how much tax they will owe for the year, they can calculate how much tax is due for the CERB benefits. Divide the total tax figure by 52 to get a weekly figure. Then multiply the weekly figure by the total number of weeks that the CERB benefit was received for the year. This will give the amount of taxes that are owed on the CERB benefits.
If you received CERB benefits in 2020, it is a good idea to ensure that you have enough money set aside to cover the taxes that will be owing on these benefits. If you haven’t put anything aside to cover these taxes, start as soon as possible. If you don’t think that you will have enough set aside to pay these taxes, consider contacting the Canada Revenue Agency to arrange a payment plan (https://www.canada.ca/en/revenue-agency.html).
This tax situation can get overwhelming but being proactive now can prevent a nasty shock down the road.
Dean LaBerge, Local Journalism Initiative Reporter, Grizzly Gazette