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Do we need to say again that 2020 has been a year? Because it has been... a year. And while we are hoping that 2021 is going to be, you know, different, there’s one thing that might be worse: we’re all going to have to navigate what might be the most complicated tax situation in modern times. There are lots of reasons for this. Some people set up expensive home offices or started working for Amazon while a lot of people lost jobs, income, or worse. But a huge source of confusion (and the thing we’re about to help you with in a super non-confusing way) is the raft of new benefits the government rolled out this year for folks affected by the pandemic. Those benefits were lifesavers for a lot of us; unfortunately, they can also have tax implications.
That’s where this helpful guide comes in. To get you ready to start your filing (may we suggest some really simple and easy to use software?), we read pages and pages of government tax documents, spoke to our in-house Wealthsimple tax pro Caroline Corbeil, and used the spreadsheety parts of our brain to devise this simple list of everything you need to know to file your 2020 personal income taxes.
Taxes 101 (and why you should file them)
Let’s start with an important overview. At a super basic level, personal income taxes are calculated based on... yes! Your income! All the money you brought in over the year, be it from salary, a business, investments, capital gains, and yep, (some) government assistance programs, etc.—minus any qualified deductions.
Second, you’re going to want to do as much as possible to be able to pay the taxes you will owe. That means having a ballpark idea of what that’ll be. Corbeil suggests using our tax calculator to get an estimate. If you don’t want to do that, Corbeil says a good rule of thumb is to set aside a quarter of your income for the period of the year you worked (which, if you lost income or a job, may be different this year).
But the most basic and important thing is... please file your taxes. On time. Even if you don’t want to. Even if you had an unbelievably rough year. If you don’t do it, you will have to pay a penalty: 5% of your balance owing, plus 1% for each full month you file your return late. There are also government benefits unrelated to COVID-19 that will be inaccessible to you if you’re delinquent (more on those below). And if you receive benefits based on the previous year’s return, like the Canada Child Benefit (CCB) or the GST/HST credit, the Canada Revenue Agency (CRA) will pull back some of those payments to pay back your balance, and then stop them completely due to the lack of payment. So yes, it’s a good idea to file even if you don’t think you’ll have enough to pay what you owe. The CRA, Corbeil explains, will work with you on a payment plan. “There's a big fear of the CRA and what they'll do if you don't pay your taxes,” she says. “Depending on your financial circumstances, you can definitely make arrangements with the CRA directly to figure out how to pay that money back.”
COVID-19 benefits and how they’re taxed
This year you may have received some of the benefits we’ll get into below. Some are non-taxable—these were one-time payments to parents, seniors and people with disabilities. Other benefits were partially taxed at the source, which means some taxes were already taken out but you may owe more. And there are some pandemic benefits that weren’t taxed at all, meaning the full tax payable will hit when you file. Here’s a guide to all of them.
Canada Emergency Response Benefit (CERB)
This is a doozy when it comes to taxes, so let’s start with it.
CERB was announced very soon after the pandemic hit Canada and stay-at-home orders were issued. If you lost your job, your income was reduced, or if you had to stay home to help take care of family, CERB offered income support of $2,000 a month (or $500 per week every four-week eligibility period) for up to 28 weeks between March 15 and September 26, 2020. The total you could apply for was $14,000.
Here’s the tax alert! CERB is considered income and the benefits received were not “taxed at the source.” That means if you received CERB, you’ll get a T4A slip from the government with the total amount you received. This amount must be filed as income—just like any other income. How much you’ll owe on that income will depend on your 2020 marginal tax rate (aka. your tax bracket)—which is based on your overall income, not just your CERB payments.
The simplified Employment Insurance (EI) program
Starting September 27, 2020, the government rolled out the new EI program to replace CERB for people who still needed financial support. The minimum benefit rate is $400 per week and recipients get at least 26 weeks of regular benefits (unless, of course, they are employed again sooner than that).
The advantage of this program is that you’re still eligible for it even if you receive other income. (You will have to disclose this when you file the standard biweekly reports required while you’re on EI.) You can keep 50% of this additional income—up to 90% of the weekly insurable earnings used to calculate your EI benefit amount. That 90% is called the “earnings threshold” by the CRA and if you earn above that threshold, the CRA will do a dollar-for-dollar deduction from your future benefit payments.
Here’s the tax alert! EI is also considered income and has to be reported on your tax return. But unlike CERB, some taxes are removed by the government before you even get it. In some cases, though, (like if you have other income) you may need to pay additional taxes on it. How will you know? When you receive your T4E slip for EI, known as the Statement of Employment Insurance and Other Benefits, you’ll use the amount to calculate your income on your tax return, which will determine your federal, provincial and territorial taxes.
Canada Recovery Benefit (CRB)
When the government launched the simplified EI program, they also rolled out this program for gig workers and people who are self-employed (and therefore don’t qualify for EI). Recipients receive $400 per week for up to 26 weeks.
However, you will have to pay back 50 cents of every dollar in net income that you earned over $38,000, excluding the amount you received from the CRB program.
It's totally confusing, we know. So let's say you've got CRB payments and you have whatever income you've made. If you got CRB and made up to $38,000 a year in net income, you don't have to pay back CRB. But say you made $45,000 in net income and you got CRB—you'd be $7,000 over the $38,000 earning limit. Because you have to reimburse 50% of the net income you earn above the $38,000, you'd have to pay 50% of $7,000, or $3,500.
Here’s the tax alert! The amounts that are repaid will not be included in your taxable income but will instead be incorporated into your total amount payable and be reconciled on your T1 tax return. So keep the amount you may have paid back before tax time in mind, because you may have already paid part of what you owe.
Canada Recovery Sickness Benefit (CRSB)
If you couldn’t work due to having COVID-19, whether employed or self-employed, and don’t have a paid sick-leave program, CRSB is a year-long program that launched on September 27, 2020. It gives qualified applicants $500 a week for up to two weeks.
CRSB is treated as income and is partially taxed at the source. The CRA withholds 10% (so you actually get $450, not $500 per week). But you could owe additional taxes on that benefit depending on your total income and tax rates in your province or territory. The government will send you a T4A tax slip that will list how much you got in CRSB payments, so you can include it when you file. (As an example, if you live in Ontario and earned $30,000, you should expect to owe a bit more.)
Canada Recovery Caregiving Benefit (CRCB)
This benefit is a lot like CRSB above, but for people who can’t work because they’re caring for a family member due to COVID-19. It provides $500 per household (not per person) for each one-week period for up to a maximum of 26 weeks.
This benefit is also treated as income and just like CRSB, it is partially taxed and the government has already withheld 10%. You may need to pay additional taxes depending on your overall income and tax bracket. (Again, as an example like the above, if you live in Ontario and earned $30,000, you should expect to owe a bit more.)
Canada Emergency Student Benefit (CESB)
This benefit, which closed on September 30, 2020, was for current post-secondary students, and recent high school and post-secondary graduates who couldn't find work due to the pandemic. Applicants got $1,250 for a four-week period up to a maximum of 16 weeks, between May 10 and August 29, 2020. If they had dependents or had a disability, they received an additional $750 for each four-week period.
Here’s the tax alert! The CESB is not “taxed at the source,” so you’ll get a T4A slip that will list how much you got, and you’ll need to declare it as income when you file.
And now a little good news. If you received any of these COVID-19 benefits, they’re yours to keep—tax-free.
Individuals with disabilities
If you are eligible for a disability pension plan from Canada or Quebec, and have a valid Disability Tax Credit (DTC) certificate from the CRA or Veterans Affairs Canada disability support, you may have received up to $600 for extra expenses as a result of the pandemic.
Special Goods and Services Tax Credit (GSTC)
Those who are eligible for GSTC for 2019-2020, will likely have received a one-time payment in April that doubled the usual GSTC amount. That benefit is tax-free.
Increased Canada Child Benefit (CCB)
This was a one-time payment to eligible parents. People who received the CCB in April 2020 would have received an extra $300 per child in their May 2020 payment. Like the GSTC above, the payment was based on your 2018 returns and you will owe nothing extra on your taxes if you received it.
Old Age Security (OAS) pension and Guaranteed Income Supplement (GIS) payments
A one-time OAS and GIS payment was made to eligible lower-income seniors who were at least 65 years old. If you get OAS payments, you likely received an extra $300 in July 2020. If you qualified for GIS payments, you would have received an additional $200. You’ll owe nothing extra on your taxes if you received this benefit.
A reminder about money you could get back if and when you file your taxes
While taxes are mostly about giving money to the government, sometimes the government provides benefits by kicking a little back. But that’s only if you file your taxes! (Have we said this yet? File your taxes). These aren’t new benefits. But because a lot of people earned less in 2020 than in a typical year, there are lots of folks who now qualify for these benefits.
Note: we don’t include provincial and territorial benefits below, so make sure to find out what else you qualify for based on where you live.
Canada Workers Benefit (CWB)
This refundable tax credit is for eligible low-income working families and individuals. It replaced the working income tax benefit (WITB) in 2018. The CWB also has a disability supplement for people who have an approved DTC certificate on file with the CRA.
Canada Child Benefit (CCB)
This benefit helps eligible families with the cost of raising kids who are under 18 years old. You may have heard it called the ‘baby bonus.’ It’s a monthly tax-free payment. This benefit also has a disability supplement and provincial and territorial benefits.
Goods and Services Tax/Harmonized Sales Tax (GST/HST) Credit
The GST/HST credit helps low- and modest-income families and individuals offset part or all of the GST/HST they have to pay. You don’t have to apply for the credit as you’re automatically considered for it when you file your taxes. If you’re eligible, you’ll get tax-free, quarterly payments and may also get support from the provinces and territories.
Employment Insurance (EI) program
If you lost your job and are receiving EI, you can take training courses and continue to receive your payments. This is not a new pandemic benefit but something to consider. There are several options available, including one that lets you do full-time training while continuing to receive EI income.
Canada Education Savings Grant (CESG)
This one has been around for a while and it’s a good one because it really is like free money. The government gives you money that goes towards your child’s Registered Education Savings Plan (RESP) for their post-secondary education. Every child can get it, regardless of family income.
Canada Learning Bond (CLB)
This is money that the government adds to an RESP for children from low-income families so they can pursue post-secondary education. The government gives up to $2,000 to the child’s RESP and you don’t have to make personal contributions to the account. (And as a bonus, Wealthsimple charges no management fees on RESP accounts for families that qualify.)
Guaranteed Income Supplement (GIS)
We mentioned this earlier but it’s worth mentioning again, especially if you’re retired or are retiring soon. It is a non-taxable monthly benefit that is available to low-income Old Age Security pensioners. The GIS is based on your income. There are also partner and survivor benefits.
Whew. That’s it. You’ll be able to file your taxes beginning February 22, 2021. (If you’re really itching to get started, you can get started on your return mid-January.) As always, the sooner you file, the sooner you’ll get your refund. Finally: one thing that hasn’t changed in 2020? The simplest, most cost-effective, most don’t-have-to-leave-your-house way to file your taxes is still Wealthsimple Tax. Grab your slips, click some links, and get after it! Or at least drag yourself grudgingly to the keyboard. It’s actually not that bad.
Renee Sylvestre-Williams is a finance and money journalist who covers the topic for the Globe and Mail, Ontario Securities Commission and MoneySense. She is also the creator of The Budgette, a newsletter focused on sole earner finances.