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While you may be looking forward to putting 2020 in the rear-view mirror, there is still one important 2020 task left to complete.... your taxes.
As you can imagine, the COVID-19 pandemic has prompted some changes and special considerations for 2020 tax returns.
If you've been affected by COVID-19 and received a government payment or you're just looking for information on any new tax breaks in 2020, check out our guide on what you should keep in mind for this unusual year.
When do I need to file my taxes?
The last date for individual filing in the 2020 tax year is April 30, 2021. While the filing date was extended last year for 2019 taxes until June 1, 2020, the tax filing date has gone back to the normal time for 2020.
Are you saving tax-efficiently?
Make sure you are saving all year round in tax-efficient accounts like the Registered Retirement Savings Plan (RRSP) and the Tax-Free Savings Account (TFSA).
An RRSP is an account to help you save for retirement. The contributions you make to it can lead to income tax deductions in the year you contribute. One of the main benefits of an RRSP is that you defer paying taxes on the money you put in today and any investment income earned, until years later when you withdraw your money in retirement. When you’re retired, you could potentially be in a lower tax bracket and pay fewer taxes than when you are making a larger income.
A TFSA is an investment vehicle that can be used to save towards retirement, but also many other goals because, unlike an RRSP, you’re free to withdraw at any time without penalties. The main benefit of a TFSA is that they are completely tax free. Since you’ve already been taxed on the money you put into your TFSA, any income you earn from the investments within your TFSA are completely tax free, even when you withdraw from it.
RRSPs and TFSAs each have their own benefits. A financial advisor can help review your personal circumstances and investment goals to help you decide how they can work in your financial plan.
How do COVID-19 relief benefits affect your taxes?
The Canadian government continues to provide a variety of benefits and services to assist Canadians and business owners impacted by the COVID-19 pandemic. All of these benefits are taxable. Here are some of the relief efforts that you’ll need to include when you file your taxes (if you used them).
Canada Emergency Response Benefit (CERB)
CERB was a payment made to self-employed and employed Canadians directly impacted by COVID-19. Those who are eligible for CERB can receive $500 per week from March 15 to September 26, 2020.
If you received CERB and you're wondering if you have to pay taxes on this money, the answer is yes.
The CERB payments you may have received are taxable and no taxes were withheld on the distributed payments. You will need to report the CERB amount found on your T4A tax slip on line 13000 of your 2020 tax return.
Canada Emergency Student Benefit (CESB)
The CESB was a financial resource available to post-secondary students as well as recent post-secondary and high school graduates who were unable to find work due to pandemic. Applicants could receive $1,250 for a 4-week period up to a maximum of 16 weeks. Those with a disability or dependents could apply for an extra $750 for each 4-week period.
This benefit was available from May 10 and August 29, 2020, and officially closed for applications on September 30, 2020.
No taxes were deducted from the CESB benefit. Recipients will receive a T4A tax slip for the amount that was received.
Canada Recovery Benefit (CRB)
The CRB replaced CERB on September 27, 2020. While the CERB payments didn’t withhold any taxes before being distributed to Canadians, 10% of the payments on CRB is withheld. This means the $500 per week payment has been reduced to $450 per week after taxes.
This 10% will be credited to your taxes, but it doesn’t cover the full amount of taxes you will owe.
Like the CERB, the Canadian Revenue Agency (CRA) will send a T4A slip to all Canadians who received a CRB payment. All payments received between September 27 to December 19, 2020 should be reported on line 13000 of your tax return. Payments received after December 20 will be reported on your 2021 tax return.
Canada Recovery Sickness Benefit (CRSB)
The CRSB provides financial support to employed and self-employed Canadians who are unable to work due to sickness, because of self-isolation due to COVID-19, or because they have an underlying health condition that puts them at greater risk of getting coronavirus.
Individuals who are eligible for CRSB can receive $500 for one week, which works out to $450 after the 10% tax is withheld. If you need more than one week of support, you have to apply again. Maximum support for CRSB is two weeks.
CRSB payments received before December 26 should be reported on line 13000 of your 2020 tax return. Payments received after this date will be reported on your 2021 income tax return.
Canada Recovery Caregiving Benefit (CRCB)
The CRCB is a financial benefit given to one eligible individual in a household who is caring for a family member who needs supervised care. The payments are $500 for one week ($450 after the 10% tax is withheld).
If you need support beyond one week, you need to apply again for the benefit. You can apply up for up to 26 weeks between September 27, 2020 and September 25, 2021.
Like the CRSB, payments received before December 26 should be reported on line 13000 of your 2020 tax return, those received after this date will be reported on your 2021 income tax return.
Tax breaks for 2020
If you're looking for ways to reduce your taxable income in 2020, there are some new tax breaks to be aware of.
Enhanced CPP contributions
The CPP is a mandatory pension plan that nearly all working Canadians pay into (except people in Quebec who contribute to the QPP).
Starting January 21, 2019, Canadians started contributing more to their Canadian Pension Plan (CPP). This increase is due to the CPP Enhancement change. The goal of this change is to gradually increase the retirement income for working Canadians.
Over time, Canadians will see an increase in their retirement benefits as they begin to contribute more to their CPP.
Before the enhanced program began, the CPP rate was 4.95%. This means that your employer deducted 4.95% from your taxable income above the basic exemption amount of $3,500.
As of 2020, the enhanced CPP rate is 5.25%. This means your employer will now deduct 5.25% of your total income up to a maximum of $58,700.
There are two associated tax breaks that can be applied to the enhanced CPP:
- Canadians can claim a 15% non-refundable tax credit for the base CPP contributions. A non-refundable tax credit is applied directly to the amount of taxes you owe. So, if you owe the government $3,000 and get the maximum tax credit of $2,732, then you will now only owe $268. But if you don't owe any taxes, then you won't receive a tax refund.
- The enhanced CPP amount is also tax-deductible. The maximum enhanced portion CPP contribution provides a $166 tax deduction.
Canada Workers Benefit
The Canada workers benefit (CWB) was introduced in 2018. The CWB is a refundable tax credit available to low-income working individuals and families.
With the CWB, a single individual can receive a maximum payment of $1,381. The payment is gradually reduced if net income is more than $13,064, and no payment is received if net income is over $24,573.
The maximum CWB payment for families is $2,379 and is gradually reduced when net income is over $17,348. Family CWB payments stop when net income is over $37,173.
The CWB provides an additional disability supplement for individuals with disabilities with an approved Form T2201, Disability Tax Credit Certificate on file with the CRA.
Climate Action Incentive (CAI)
The CAI is a refundable tax credit for residents in Alberta, Saskatchewan, Manitoba, and Ontario. Starting in 2019, residents in these provinces had to pay a federal carbon tax. The CAI is a way to compensate these residences for any increased costs associated with the carbon tax.
If you are eligible for this tax credit, you will receive it automatically when you file your 2020 income tax return.
According to a recent Government of Canada announcement, in Alberta, a family of four may expect up to a $981, in Saskatchewan up to $1,000, in Manitoba up to $720, and in Ontario up to $600. There is also a 10% supplement for Canadian residents living in small and rural communities.
As a refundable tax credit, the CAI can be used to reduce the amount of taxes you owe. Or, if the CAI tax credit is greater than the amount of tax that you owe, you can receive a refund for the difference.
Don't forget to file
For most Canadian taxpayers, the last date for filing your 2020 taxes is April 30, 2021 If you were a recipient of COVID-19 benefits in 2020, then remember, this is considered taxable income, and you will have to include them in your tax return
Before you file, be sure to review the new tax breaks for 2020 and take advantage of them where you can to reduce your taxable income and put money back in your pocket.
If you need help preparing your taxes, consider reaching out to a tax professional. If you plan on doing your own taxes, you can use this helpful income tax calculator from TurboTax to determine how much you owe, or how much you can expect for your 2020 tax refund. You can also use tax software to simplify the income tax process.
