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How will CERB affect your 2020 tax return?

Feb 19, 2021 | 9:49 AM

This may be an unusual year for preparing your income taxes – especially if you received the Canada Emergency Response Benefit (CERB) or any other COVID-19 government benefit in 2020. Many people are concerned about how receiving the benefits will affect their 2020 tax return. Many individuals and families are already struggling with their household budget and debt repayment, so there is concern that the tax impact of the government benefits will worsen their financial situation.

Nearly 9-million Canadians applied for the CERB, and approximately $81.64 billion was paid out. In Saskatchewan, over 240,000 residents applied for the CERB. When the government paid out these funds, they did not tax the benefit at source. Furthermore, in an effort to get funds into the hands of Canadians quickly, they also did not assess eligibility. As a result many people received the benefit that were not in fact eligible, and many Canadians may have an income tax bill that they were not expecting and may not be able to pay off.

Collection letters from CRA

The Canada Revenue Agency has sent out approximately 450,000 collection letters to Canadians indicating that they must repay the CERB they received on the basis of ineligibility. The government made a recent announcement regarding self-employed individuals, clarifying that if they applied for the benefit based on their gross income and not their net income that they will not have to pay it back. However, many people are still expected to pay back the benefits received.

How much will you have to pay back?

How much you will have to pay back is dependent on your total income for 2020 (any other income in addition to the CERB).

· If your total income is less than the basic federal exemption amount of $13,229, you won’t owe federal taxes;

· If you received the maximum CERB amount of $14,000, and that was your only source of income, the tax you owe will be minimal;

· If your total income is in excess of the basic federal exemption – the higher your income, the higher your tax bill;

· For example, if you made $30,000 this year, excluding any CERB benefits, in Saskatchewan, your tax bill would be approximately $3,979;

· If you had $30,000 of regular income and the maximum $14,000 of CERB, in Saskatchewan, your income tax bill would be approximately $7,549, an increase of $3,570.

The tax can add up quickly. To estimate your income tax bill, there is a tax calculator located at taxtips.ca.

What do I do if I owe?

If you owe income tax and/or any other debt – do not simply ignore it.

· Review the Canada Revenue Agency website. You may qualify for a deduction for home office expenses for example, if you worked from home more than 50% of the time for at least four consecutive weeks due to COVID;

· File your return on time. Filing late will only increase your income tax bill;

· Communicate with Canada Revenue Agency and work out a payment plan;

Ignoring tax debt could lead to having your bank account frozen, your wages garnisheed, or a lien on your property. If you are struggling with income tax or other debt. Reach out to a Licensed Insolvency Trustee. They will review your situation – without judgment – and offer you solutions that are specific to your specific situation.

If you are having trouble making ends meet each month, finding the right debt solution can help. Visit the BDO Debt Solutions website for more information about bankruptcy, or call 1 855 BDO DEBT to book a free, no obligation consultation.

Prince Albert and Area

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