What about my taxes – October 2020 Edition
What a crazy year. I read the news and look at other countries and am very happy to be a Canadian. Hopefully you haven’t needed to take advantage of the programs that were and still are available for companies, families and individuals, but if you did, you are not alone and hopefully are glad these programs were in place. CERB/CRB helped roughly 9 million people, and over 300,000 companies have used CEWS to keep people working. Other countries are not nearly as helpful. My concern is what is going to happen next year, when people have to claim these benefits on their taxes? Unfortunately, there isn’t a lot of information out there on that yet, but based on what CRA has done in the past, we can probably figure out a reasonable response they’ll have.
In the past, people have gained assistance from EI, CPP, OAS or several other programs, and the government likes to make sure they can collect on taxes when people make over a certain amount, regardless of whether any programs were used by an individual or not. Currently these programs have options for taxes in place. For instance, when a person claims EI because they were laid off or went on maternity leave, or some other instance, a portion of the benefit is kept as income tax paid on that amount. When someone collects an Old Age Supplement or from the Canada Pension Plan, there are options to request some amount be kept or deducted for income tax so that a person doesn’t have a high tax bill at the end of each year. This is not the case with CERB, as it is a flat amount provided without any tax taken off. In the case of CRB, there should be slight reduction as they are deducting $100 on every $1,000 2-week claim. You should also be aware that when unemployment is involved, there can be a potential request to repay some of the benefits if your total income for the year ends up being over a certain amount. With respect to CERB and CRB, it appears that benefits need to be repaid if your total net income is over $38,000 in the calendar year (excluding payments from CRB).
Overall, if you are receiving any benefit, you should anticipate some form of tax to occur. Generally, a person can earn $13,000 employment income without any tax being payable. So, if you receive any subsidy that gives you $2,000 for 6 months ($12,000), there should not be any taxes owing at the end of the year. However, if this same person earned $5,000 employment income, they would now have $17,000 in income, and taxes would be payable on a portion of that. The lowest federal tax rate is 15% on income below $48,000, and the lowest provincial tax rate is 10% below income of $130,000 (for Alberta, with personal exemption of $19,000). Therefore, we can expect that 15% of $4,000 or $600 would be the taxes owing. This could add up quickly depending on how much a person makes in a year before or after taking a subsidy, as it adds to their existing income, but without any taxes being taken care of.
Typically, we tell our clients that any time they receive a subsidy that they want to try and save about 25 – 30% of it for taxes so they aren’t surprised by their bill, but it definitely ranges from client to client as situations usually differ from case to case. But that is probably a good generalization to use for more clients. If it ends up being less, you have a little savings left over, and if it is more, you can at least make a decent dent in the amount you owe. If you want our help with your specific circumstance, please contact us at Zablocki & Associates – our goal is help you save money and not spend a fortune figuring out how.
C. Zablocki