VANCOUVER (NEWS 1130) — Tax season, like everything else in 2020, is set to be unprecedented. Many who suffered financial hardship due to the pandemic and received the Canada Emergency Response Benefit (CERB) will find themselves owing money for the first time in their working lives.
Aynsley Price, an accountant and tax partner at PWC, says the crucial thing to understand is that the benefit counts as income, and it was delivered to Canadians without being taxed.
“Unlike a T4, which is your statement of employment income, taxes are not withheld at source, meaning your CERB payments are not net of tax. If you received the CERB, you are liable for the tax on the full amount,” she explains.
“For many individuals who have historically received a T4 this may very likely be the first time they are owing tax on a personal tax return It’s going to be a large portion of people who, I think, are going to be faced with a tax bill for the first time.”
In Vancouver, on average, there were 67,207 CERB recipients during each four-week period the pandemic aid was available, according to an analysis done by the Canadian Press. That shakes out to about one in 10 residents. About 23 per cent of people in the province applied for federal relief. Nation-wide 8,899,170 received the benefit.
The maximum amount an individual could have received through the CERB is $14,000 — $500 per week for 28 weeks. Price says even those who report no income in addition to the CERB will owe the feds $41. That is because any income exceeding $13,229 is taxable. The amount owing for those who earned money through employment will vary depending on the situation, with the rate of tax owed increasing based on the total amount of income. Those who made less than less than $41,725 in 2020 will see their CERB taxed at 15 per cent.
“Your rate of tax is going to get progressively higher as your taxable income increases,” Price notes.
She offers one example of someone whose 2020 income was a combination of CERB and wages.
“If you earned 18,000 of employment income and then the full amount of the CERB — $14,000. So that would have given you $32,000 for the year, you would owe approximately $900 of tax.”
In another example, she calculates that someone who was self-employed and made $2,000 in addition to the full CERB amount will owe about $400.
An online calculator is available for anyone wondering how hard they might be hit when they file.
But Price says there is some good news for people who find themselves with a brand new bill that they are unable to pay.
“If you file your 2020 tax return and you are reporting the CERB, or the [Canada Recovery Benefit], or both the CRA will automatically apply interest relief on your taxes owing,” she says, noting the Canada Recovery Benefit was taxed at 10 per cent.
“You will not, essentially, be charged any interest on any amount owing from your 2020 taxes until April 30, 2022.”
Although she understands people may be tempted to avoid filing if they are anticipating an unwelcome expense, Price says not filing will end up costing them more.
“Even if you don’t have the money right now to pay your taxes, you still have to file your tax return. If you file late, you will be charged a 5 per cent late filing penalty on top of what you already owe,” she says.
Listen to Thursday’s episode of The Big Story podcast for more on the ways that the COVID-19 pandemic will impact 2020 taxes.
Editor’s note: This article has been updated to correct the amount a person receives through the CERB to $500 a week.