If you received government assistance during the COVID-19 pandemic in the form of CERB (Canada Emergency Response Benefit) payments, it's important to know your tax obligations for the 2020/2021 tax season.
First, keep in mind that all CERB payments are taxable, according to the CRA. And unlike the way your taxes are typically taken from your paycheque by your employer, taxes on CERB payments are not taken off of the amount(s) you get from the government. Instead, CERB payments are added to your overall income numbers, and your amount of taxes owed is then calculated based off that total amount.
Second, if your income is less than the basic personal exemption ($13,229), you will not be required to pay taxes (on CERB benefits or your income). Similarly, if your only source of income in 2020 was CERB payments, you will also owe nothing in federal taxes, but could end up owing provincial taxes (between $46 and $234), depending on which province you call home.
To get a general idea of how much tax you may owe next season due to CERB benefits received, start with the following three numbers:
- Your income before receiving CERB payment(s) in 2020
- The amount of CERB payment(s) you will receive in 2020
- Your estimated income in 2020 after receiving CERB payment(s)
Once you have these numbers, visit this handy tax calculator site and input them as follows:
- Expected non-CERB income (noting the taxes payable)
- Expected income with CERB (noting the taxes payable)
The difference between those two totals is what you should expect to pay in taxes for the next tax season.
Because you could end up owing thousands of dollars in additional taxes due to receiving CERB benefits, it is important to try and plan your path to payment in advance. Some of the more common strategies for this are:
- Placing a percentage of each pay cycle into a separate account, so it will be there for you when you need to pay taxes
- Starting an RRSP or TFSA
- Asking your employer to deduct more in taxes from your paycheque(s)
You should always try and pay any taxes owing on time, however in the event you can't, payment plans and schedules with the CRA are available.