UPDATE: In a reversal of his government’s previous position on the issue, Prime Minister Justin Trudeau announced Feb. 9 that taxpayers who accessed CERB based on their gross income instead of net income won’t have to repay the money they received to the federal government as long as they meet the other eligibility criteria.
“For people who accessed CERB based on their gross income instead of net income, as long as you meet the other eligibility criteria, you will not have to return those CERB payments,” Trudeau said during a press conference.
Tax season 2021 promises to be one for the history books. With millions of Canadians losing their jobs and receiving COVID-19 income support and many pivoting to self-employment or side-gigs to make ends meet in the pandemic, tax preparers are bracing for a tsunami of complex returns and taxpayer anxiety this year.
“The biggest thing this year is just a fear and an uncertainty and some doubt about how that plays into your bottom line,” says Jennifer Gorman, social care manager for TurboTax Canada, which has hired three times as many tax experts as it did last year for the upcoming season.
But the best thing you can do to lower your tax-stress levels is to prepare yourself, gather your documents and file early, tax pros tell Global News. Here’s what you should know about tax-filing this spring:
This year’s tax deadline:
If you’re like most Canadians, the deadline to both pay and send in your tax return is Friday, April 30. If you’re self-employed or have a spouse or common-law partner who is, you have until Tuesday, June 15 to file your return. However, you must still pay off any taxes owing by April 30.
When does tax season begin?
If you just can’t wait to do your tax paperwork, know that you’ll be able to file your 2020 tax return electronically starting on Monday, Feb. 22. But while an early start seems like an especially good idea this year, make sure you have received all your tax slips you need before you start filling out your tax documents, Gorman says.
Tax slips to watch out for:
There are a number of tax slips you may have to watch for this year. In fact, even the plain-vanilla T4 from your employer looks a little different this year, says Lisa Gittens, a tax expert at H&R Block Canada. There will be extra boxes at the bottom that will help the Canada Revenue Agency check whether you were working while also collecting COVID-19 benefits like the Canada Emergency Response Benefit (CERB) or the Canada Recovery Benefit (CRB), according to Gittens.
If you did receive any of those income supports, the government will send you various kinds of tax slips with information to fill out your return. For any payments you got through the CRA, expect a T4A, says Gittens. For money sent from Service Canada — including Employment Insurance benefits and CERB payments not processed by CRA — you’ll see a T4E.
Do you need to repay CERB and other COVID benefits by the tax deadline?
You do not. If you’ve received financial assistance you weren’t eligible for, you’ll have to return the money to the government. However, that process is separate from your tax return. So far, the CRA has not specified when repayments of federal COVID-19 benefits received in 2020 are due.
Still, unless you paid back the funds before the end of 2020, any income support you received last year will show on your tax slips. You’ll have to report the income on your 2020 tax return and may have to pay income tax on it. This raises the possibility you’ll pay tax on 2020 benefits that you’ll eventually have to pay back. If this happens, the CRA will eventually make you whole but you may have to wait until you file your 2021 tax return in the spring of 2022 until that happens.
“Any repayments made in 2021 will be recognized on a T4A slip for 2021, which will allow the individual to claim a deduction on the 2021 income tax and benefit return,” the CRA told Global News via email.
The process is based on general tax rules in the Income Tax Act that apply to repayments of taxable income, the CRA has previously told Global News.
You can repay any amounts you weren’t eligible for through your online “My Account” with CRA or via online banking. Search for “CEB repayment” — the catchall for all emergency benefits — as a payee if you received the money from CRA and “Employment and Social Development Canada” (ESDC) if you got it from Service Canada. You can also mail a cheque or money order to the CRA or ESDC.
Why you may owe more taxes this year:
The first round of emergency benefits Ottawa rolled out during the pandemic did not have any tax withheld at source. If you received either the CERB or the Canada Emergency Student Benefit (CESB), you’ll have to include 100 per cent of those payments in your 2020 tax return.
How much tax you’ll actually end up paying depends on your overall income for 2020. For example, if you made $27,000 from work in 2020 and received $8,000 worth of CERB, your taxable income for the year would be $35,000. Both the income you received from CERB and your job would be taxed in the same way.
It’s possible you won’t have to pay any tax at all.
“If you’re under $12,000 in total income for the year, you don’t have to worry about any income taxes next year,” Frank Fazzari, a chartered professional accountant at Vaughan, Ont.-based Fazzari + Partners, previously told Global News.
With the second round of COVID-19 benefits that became available in September — the CRB, the Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB) — the government has been withholding 10 per cent in tax at source. This, however, “may be insufficient to cover your tax liability,” Jamie Golombek, managing director of tax and estate planning with CIBC Private Wealth Management, has warned.
In addition, when it comes to the CRB, you may have to pay money back if your additional income for 2020 is more than $38,000. The clawback rate is $0.50 for each dollar of CRB received for net income over this amount.
Similarly, you may have to repay some of your EI benefits through your tax return if your net income for 2020 is greater than $67,750.
You may also have to pay income taxes on some provincial COVID-19 benefits such as Alberta’s Emergency Isolation Support and New Brunswick’s Workers Emergency Income Benefit.
New tax breaks:
Don’t be thrown off if you see a large tax balance owing at first, Gorman says. You may be eligible for a variety of deductions and credits that could significantly reduce or eliminate your liability, she adds.
If you’re an employee who’s been toiling at home more than 50 per cent of the time over at least four consecutive weeks in 2020 due to COVID-19, you’ll likely be able to claim some home-office costs without having to worry about receipts or having to ask your employer to fill out paperwork. Instead, you’ll be able to claim a deduction of $2 for every day you worked from home in 2020 up to a maximum of $400. This is what the CRA is calling a temporary flat-rate method of calculating the home office deduction.
It’s important to note the deduction lowers the income on which you’ll be taxed, Gorman says. For example, if you qualified for the maximum $400 tax break, that’s not $400 off the taxes you may have to pay.
“It’s $400 coming off your net income,” Gorman says. “So if you made $20,400, now you’re only going to be taxed on $20,000.”
If you’re an employee with significant home office expenses, you may be better off using the traditional “detailed method” of calculating the home-office tax deduction, Gorman says. This may be the case if you’re renting, she adds.
To figure out how much you can claim, you’ll need to calculate the size of the part of your home you’ve been using as an office as a percentage of your home’s total size. If you live in a small two-bedroom apartment and one of those bedrooms has become your office, it may be worth taking a look at what kind of deduction you’d be entitled to using the more elaborate math, Gorman says.
Thankfully, the CRA has a handy calculator to help you assess your work-from-home deduction this year.
If you’re self-employed, you’ll have to use the detailed method to claim the deduction.
The digital subscriptions tax credit:
Having a digital subscription for a Canadian news outlet could help you shrink your tax bill this year. You can claim up to $500 annually for a subscription to a qualifying journalism organization, which translated to a maximum of $75 off your tax balance if you have one. (Broadcasting organizations are not eligible for the credit.)
The Climate Action Incentive:
The federal Climate Action Incentive isn’t new, but if you live in Alberta, Saskatchewan, Manitoba or Ontario it will also help you reduce your tax or put some cash in your pocket. The money is meant to offset the cost of the carbon tax in provinces that do not have a carbon price regime of their own, and the amount of the tax credit depends on family size.
It’s important to note that the tax credit applies to the household, not the individual taxpayer, Gittens says. This means that only one person for every family living under the same roof should claim the credit.
Autofill is your friend:
There’s a lot of new information to take in this tax season. But if you’ve been receiving your COVID-19 benefits through your CRA My Account, “that is going to take almost all of the worry out of it,” Gorman says.
If you’re filing with pen and paper, both large tax preparation firms and independent tax accountants will likely let you drop off your documents and pick up your completed returns, minimizing in-person contact.
And free tax clinics, where trained volunteers at community organizations help low-income Canadians with a simple tax situation, started to provide tax support remotely, including via video call, last year.
The CRA said early this year it will put more than $10 million over three years into a new grant program to help these organizations offset some of their costs.