2020 has been a difficult year for many Canadians with COVID-19 affecting most of us in one-way shape or form. With the year winding down, it is time to start thinking about the next tax filing season. As new information has become available from the Canada Revenue Agency (CRA) in recent weeks, we are hoping this blog post will help outline some of the steps that must be taken by individuals and business owners from income received through the 2020 programs that were put in place due to the pandemic.
As most of us are aware, the federal government quickly implemented income replacement programs to help those businesses and individuals who were affected by COVID-19. As to be expected, this upcoming tax season is gearing up to be even more complicated than usual for Canadians who took advantage of these programs. Although tax season is still a few months away, the ladies at SheDo Tax are recommending that taxpayers ensure they were eligible for each COVID benefit they applied for and gather as much income source information as they can to determine if money needs to be set aside for potential tax balances due.
The programs that became available through Canada’s COVID-19 Economic Response Plan have been helpful to many, but what taxpayers need to remember is that most of the subsidies and benefits ARE taxable.
What does this mean? It means that monies received from these programs that were marked “taxable” will have tax implications. For individual’s who received income from CERB, CRB, CESB etc., you will be expected to report the full amount you received and it will be added together with any other sources of income that were earned during the tax year.
One important thing to note is unlike your employment income where income tax is deducted at source (calculated by the income you made from that source only) and will be reported on your T4 slip at the end of the year, any income received through the economic response plan did not withhold any income tax at source.
For 2020, the basic personal exemption amount is set at $13,229. This is the amount of income you can make before income tax applies to your income. For those Canadians who claimed all 7 periods of CERB, they will have exceeded the basic personal amount. Likely, most individuals will have other sources of income to declare. However, you should see if you only received CERB alone in 2020, and have no other deductions to declare, you may owe income tax since no tax was deducted at source. This is a simple example to show how easily a tax balance can occur in the 2020 tax year if no income tax was set aside.
On the bright side, benefits such as the increased one -time payout for HST, increased one -time CCB payout are not taxable, and you will not be required to report that income, nor will you receive a tax slip.
All business owners who received subsidy and relief monies through business COVID related programs will also be required to add these amounts to business income when filing their 2020 income tax returns.
Three of the available programs for businesses that we would like to focus primarily on include: Canada Emergency Wage Subsidy (CEWS), Canada Emergency Business Account (CEBA) and the Temporary Wage Subsidy (TWS).
The Canada Wage Subsidy program (CEWS) provided employers an option to help prevent lay off but rather encourage rehiring. If an employer is eligible in any of the 12 qualifying periods, they can receive up to 75% of remuneration paid to employers as a subsidy reimbursement. The amount of CEWS an employer receives in each period, will be considered as government assistance, and will need to be included in the employer’s income for the taxation year.
Similarly, the Temporary Wage Subsidy (TWS) was a three-month subsidy that allowed eligible employers to reduce their payroll source deductions by 10% when remitting to the CRA. The amount that was deducted is to be marked as taxable income. It is important to note that any employer that participated in this program, a PD27 form must be filled out and uploaded or mailed to CRA. Although currently there is no stated due date, it is highly advised to submit by the end of the calendar year.
The Canada Emergency Business Account (CEBA) is a $40,000 interest free loan for employers. The program was meant to help employers pay for non-deferred expenses. If the maximum was applied for and used, then $10,000 of this loan may be forgivable. To elaborate, if the loan is repaid by December 31, 2022 then only $30,000 is due to be paid back. There are no terms during this two-year period and no interest applied. If the loan is not paid by this time, it will convert into a 3-year installment payment at 5% interest due by Dec 31, 2025. The eligibility and criteria of this program has changed multiple times since the beginning of the loan’s launch. One thing is certain that for the 2020 tax filing, the forgivable portion of the loan of $10,000 (maximum) IS to be reported as income for the business in the current year. If any of the forgivable portion is repaid in a future year, this can be a deduction for the year it is repaid.
We understand the 2020 tax filing season is going to be confusing and likely frustrating. Hopefully, you can put your mind at ease as SheDo Tax is here to help along the way! As more information becomes available to us, we will do our best to keep our clients updated and in the know with new tax implications.
As always, if you have any questions or need some guidance and advice please email info@shedotax.ca or give us a call at 289-758-9501.