The Canada Recovery Benefit, which replaced the Canada Emergency Response Benefit (CERB) for self-employed Canadians, has ended. But for the hundreds of thousands of people who received the benefit in 2021, the tax consequences of the federal income support programs will spill into 2022.
Finance Minister Chrystia Freeland announced Oct. 21 that Ottawa would wind down the CRB, along with Canada Emergency Wage Subsidy (CEWS) and the Canada Emergency Rent Subsidy (CERS), as of Oct. 23.
Beginning in September 2020, the CRB provided $1,000 — later scaled back to $600 — every two weeks to Canadians who weren’t able to work or had seen a reduction of at least 50 per cent of their weekly income because of COVID-19 and were not eligible for Employment Insurance.
Unlike with the CERB, Ottawa withheld 10 per cent tax at source on all CRB payments. However, recipients may have to pay more tax on their CRB income at tax time. And anyone with net income above $38,000 in a calendar year will have to repay $0.50 of the benefit for every $1 of net income above the threshold.
If you received CRB and are wondering how much to set aside for your 2021 tax bill, here’s what you should know.
You may not have to repay all of your CRB clawback amount
If you have a good idea of what your income will be for 2021, you can estimate how much, if anything, you’ll have to reimburse the government in CRB payments, says Neal Winokur, a chartered professional accountant and author of The Grumpy Accountant.
The first step is to calculate your net income. This is your total income for the year minus any applicable tax deductions. Your sources of income may go beyond your employment or self-employment income to include commissions, tips, pensions, rental or investment income, if applicable, as well as some government benefits, including COVID-19 supports like the Canada Recovery Sickness Benefit (CRSB) and the Canada Recovery Caregiving Benefit (CRCB).
When you’re trying to figure out your CRB clawback amount, though, do not include the CRB itself in your total income, Winokur says. The government wants to know whether you earned more than $38,000 in the year in addition to the payments you received through the CRB.
Once you have your total income, subtract any applicable deduction amounts. These may include deductions for contributions to your registered retirement savings plan (RRSP), moving expenses, spousal support payments and many others, Winokur says. If you’re self-employed, expenses you incurred to earn your self-employment income generally qualify as deductions.
Subtract your deductions from your total income and you have your net income excluding CRB payments. Did you hit $38,000?
If you didn’t, you don’t have to worry about repaying part of the benefit. If you’re anxious to know whether you owe any taxes, you can use an online income tax calculator to get a rough estimate, Winokur says.
But let’s say you earned $40,000 in net income, meaning you’re $2,000 above the $38,000 threshold. Having to repay $0.50 worth of CRB for every $1 of net income you earned above $38,000 means your CRB repayment amount works out to $1,000, Winokur says.
The good news is you won’t necessarily have to pay back that much to the government. Any CRB repayment will be due at tax time and become part of your overall income tax calculations, Winokur explains.
How much you’ll owe the government will depend on how much tax you’ve already paid — including the 10 per cent tax Ottawa withheld at source on your CRB payments — and any applicable tax credits, Winokur says.
“It is possible that a lot of people who think they might have to repay CRB might not have to repay any of it or might not have to pay as much as they think,” he notes.
To estimate how much you need to set aside for taxes, you can look at your 2020 return to refresh your memory about what deductions and tax credits you claimed. Assuming your situation hasn’t changed significantly, that will help you arrive at a rough estimate of your tax bill, Winokur says.
If you’ve been doing your taxes on your own online, you can use your tax software to gauge your taxes for this year. Even if you don’t have access to the 2021 version, you’ll still get a pretty good idea of what you might owe, according to Winokur.