CERB recipients should be prepared to pay income tax on payments, experts say

OTTAWA — The Canada Emergency Response Benefit was a financial lifeline for many when COVID-19 forced businesses to shutter and brought the economy to a screeching halt in the spring.

And while the $500-a-week cheques helped millions of Canadians to continue paying their bills and buying groceries, many likely didn't give much thought to how the benefit would affect their taxes.

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But as 2020 comes to a close, tax experts say now is the time to check and see if you might owe any income tax on the emergency benefit money you received this year or face an unpleasant surprise come tax time.

John Waters, director of tax consulting services at BMO Private Wealth, says it is important for people to understand that the CERB payments will have to be included in your taxable income.

"The critical thing here is of course, what is your marginal tax rate and what other sources of income do you have and that'll dictate what tax will be owing," Waters says.

CERB was designed to help those who lost work, got sick or were forced to quarantine or stay home to care for children.

If you received CERB benefits, the government will be issuing you a tax slip outlining the amount that you'll need to include as income for your 2020 tax return.

The plan pays $500 a week for up to 28 weeks for a maximum amount of $14,000. The amount you received is considered taxable income, but Ottawa did not deduct any tax when they sent the money out to Canadians.

The federal basic personal amount — the amount you can earn before you start paying federal income tax — is $13,229 for 2020.

Waters said that means if you received the maximum CERB benefit and had no other income and no other tax credits, you will end up owing Ottawa a small amount.

"The main thing is probably to do some sort of a pro forma or estimate of your tax situation for 2020 ... and get a ballpark idea of what type of tax that you might owe based on all of the income sources that you've got and maybe some deductions or credits," he said.

Waters also said it would be a good idea to look back and check that you were entitled to all of the CERB payments that you did receive.

Jamie Golombek, managing director, tax and estate planning with CIBC, says the amount you might owe depends on how much other income you earned this year before or after you received CERB payments and what other deductions and tax credits you might have.

"If you had any other income in January, February or early March or you got back to work or worked part-time or you had some bit of income on the side, then you're going to owe some money," he says.

Golombek says it is better to find out now if you might owe money so you have time to set aside the cash rather than be scrambling come April when your tax return is due.

"Now you really have a good sense of where you are going to end up," he said.

"If you are short, now could be a time to set aside an extra $25, $30, $40 a week to be able to pay those taxes come next spring."

Golombek noted the government is withholding tax on the new benefit programs that replaced the CERB program this fall, but added even then it might not be enough.

"The withholding on those is only 10 per cent, so again that might not be sufficient for many Canadians so they may want to plan for that as well so it is not a surprise," he said.

This report by The Canadian Press was first published Nov. 26, 2020.

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