How to plan ahead for your 2020 income tax filing if you’ve collected CERB


If you collect the CERB benefit in 2020, it will be included in your taxable income

You can calculate your rate of taxation ahead of time in order to set aside an appropriate amount for next tax season

Preparing now can help avoid emotional and financial stress later

easyfinancial budget calculatorSpring is here and right about now, many Canadians are thinking about their 2019 income tax returns. While the last day to file is typically April 30th, this year’s deadline has been extended to June 1st, 2020 in light of the COVID-19 pandemic. (If you’re self-employed, you have until June 15th, 2020 to file.) There are a number of tax credits to take advantage of, so be sure to do your research before filing your return. Remember, we are here to help!

While your 2019 return is timely, it’s never too early to be thinking about your 2020 income tax filing - particularly if you have collected the Canada Emergency Response Benefit (CERB) payment or plan on collecting it in the months to come. While some federal benefits are non-taxable, others - including the CERB - are treated like regular income. Here’s what you need to know in order to avoid an unwelcome surprise next year.

What is the CERB?

The Canada Emergency Response Benefit (CERB) is a federal assistance program that was introduced to support Canadians who have lost income due to COVID-19. It provides up to $500 per week for a maximum of 16 weeks, resulting in payments of up to $2000 per month and up to $8000 in total. The benefit is available to residents of Canada who are 15 years of age or older and have stopped working due to the pandemic (for example, non-essential workers who have been laid off).

To qualify, you must have earned $5000 or more in the year 2019 or in the 12 months prior to submitting your application. Applicants must have earned less than $1000 in the 14 days before filing their first CERB claim, and less than $1000 in the entire four week period before any subsequent claims. Additional financial relief measures are currently available and should be explored.

All CERB payments are taxable and will be included in your 2020 income. Here’s some helpful information on who qualifies and how to apply for this benefit.

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I collected CERB. How do I know how much money should I set aside for my 2020 income tax filing?

If you’re self-employed and used to setting aside a portion of your income for eventual taxation, your income tax filing won’t be significantly different than any other year - simply add the CERB payment total to any other income earned in 2020 and set aside the appropriate amount given your income bracket (more on that below). However, if you’re used to having your income taxes deducted from the source (your pay cheque or an RRSP withdrawal, for example), this could be new territory. Here’s how you can prepare:

If you earned $30,000 in 2020 and collected the maximum $8000 in CERB payments, your total taxable income would be $38,000. Let’s say you live in Ontario, with a 20% combined tax rate at that income bracket. If the $30,000 in earnings was taxed at the source, you would be advised to set aside around $1600 to cover taxation on your CERB payments (assuming that all other income was taxed at the source). If you were self-employed, you’d have to set aside 20% of your total income for income tax purposes.

At minimum, you should aim to save enough money to cover your tax liability using these rates as a guide. While additional tax credits may lower the final amount owing to some extent, it’s always better to be safe than sorry. There are online tax calculators that will help you determine how much money to set aside based on your income and province of residence. When estimating your taxation, your CERB income can be treated as self-employment income to distinguish it from any already-taxed employment income. However useful, it’s important to note that these calculators offer a general estimate, not personalized financial advice.

Plan now to avoid stress later

No one wants to be surprised at tax time (unless you’re being surprised with a nice income tax return cheque, of course) but if you plan ahead now, you can avoid being hit with an unexpected tax payment next spring. If you have any questions, please reach out to our team. Once again, we are here to help, and would be pleased to offer guidance and support as needed. 

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