Last year was a unique one – in every sense – COVID-19’s ripple effects on the public and the economy are yet to be seen. Given tax filing season is upon us, many Canadians are calling their tax advisors and bookkeepers, inquiring about what their forms will look like this year.
Two inevitable ramifications sprung from COVID-19’s arrival: the closure of businesses and thousands of employees getting laid off.
As a result, the Canadian federal government introduced a few funding options to offset what Canadians would otherwise be earning before the pandemic.
Several funding programs began to trickle down. Canada Emergency Wage Subsidy (CEWS), Canada Emergency Response Benefit (CERB), Canada Emergency Business Account (CEBA) and Canada Recovery Caregiving Benefit (CRCB) were all attempts by the Canadian Government to alleviate the loss of income and revenue.
However, depositing the money in bank accounts was not the final step to businesses and individuals who were eligible for the support.
Kelly McFayden, senior tax manager at BDO, said all money received from the government has to be reported on tax forms as part of the individual’s or business’s annual total income.
“Some people might have had to repay,” McFayden said. “So if you’ve repaid it in 2020, then those repayments will be reflected in that T4 A slip. But if they didn’t repay it until 2021, the no deduction will happen in 2021. There’ll be a mismatch of income this year and the deduction next year, depending on when they repaid the actual amounts, if they had to repay any.”
Mike Canfield, Partner through a Corporation at BDO, said in an email that the government did not deduct taxes from the overall CERB payments, but the payments are considered income and therefore taxable.
“It’s more likely that individuals that received CERB will have an amount owing on their personal tax return,” Canfield said.
Business owners who may have claimed CEWS or the 10 per cent wage subsidy have time to pay taxes on these grants because they were not initially taxed, McFayden said.
On Feb.9, the government announced interest relief to individuals who received COVID-related income support. Once effective, those who have filed 2020 tax returns will not be required to pay the interest on any outstanding balances owing tax debt until April 30, 2022, McFayden added.
“The government is giving them a year where they are going to provide some interest relief provisions to allow the people to take time to pay those tax bills, if there is any owing,” McFayden said.
Besides loans introduced by the government, some individuals also chose to dip into their Registered Retirement Savings Plan (RRSPs).
McFayden said anytime money withdrawal is made from an RRSP account, it immediately becomes taxable income.
“They will have an income inclusion this year in the amount that they withdrew,” McFayden said. “In all these cases, it’s highly unlikely that they’ve taken enough tax off. They did not take taxes off in the CERB. They will take 10 per cent of the newer funds starting in September.”
McFayden said if $5,000 are withdrawn from the RRSP account, 10 per cent will be taken in taxes.
“If they took them out in small amounts and they had other income, they probably didn’t pay enough tax in the year. At this time of year when we have to go file our tax returns, it all becomes taxable income,” McFayden said. “But if they haven’t taken any tax off on these amounts, then you know, it’s probably going to result in a tax bill for them.”
Generally, Canfield said, tax deductions are taken from the RRSP accounts when the money is withdrawn. However, the amount of taxes taken off are often too low and can result in a payable, Canfield added.
McFayden said there are also additional tax deductions for home office expenses this year because of COVID. Most employees were not eligible for this before, but the government has extended that this year, because of the fact that a lot of people will be working from home.
“The [government] said if you’ve worked from home for more than 50 per cent of the time for a period of at least four consecutive weeks in 2020. Due to COVID, you may now be able to claim a home office deduction on your tax return,” McFayden said.
“There’s a temporary flat rate of $2 per day up to a maximum of $400.”