With the tax filing deadline having come and gone, what do you need to know before September 1st, when all tax balances are due?
This is certainly a unique year, both from a tax perspective and otherwise. We are experiencing a global pandemic as a nation and have spent the better part of the last three months locked indoors. Given that the COVID-19 outbreak rose to prominence in Canada around the time that people typically start compiling their tax information, the Canada Revenue Agency (CRA) was quick to adjust filing deadlines. The revised filing deadline for most Canadians was June 1, 2020 (compared to April 30 in a normal tax year) and June 15, 2020 if the taxpayer operated a business during the year (unchanged from a normal tax year). Now that these deadlines have passed, what does this mean for you as a taxpayer?
I have not filed my return yet, what should I do?
If you have not filed your personal tax return yet you should reach out to your accountant to get that process started. Although returns were due June 1 and June 15 as noted above, the CRA has announced that they will waive any interest and penalties on balances owing so long as they are paid by September 1st. This effectively means that if you file your tax return and pay the balance owing (if there is one) by September 1st there are no negative implications for you. If you are in a refund position, then there is even less urgency to file your return. However, you will not receive your refund until you file your return, so it is encouraged to file sooner rather than later.
I have been receiving the Canadian Emergency Response Benefit (CERB), is there anything that I need to keep track of for my 2020 tax return?
The monthly CERB payments of $2,000 are taxable and treated in the same manner as your other employment or business income on your tax return. You will receive a T4A slip in early 2020 indicating the amount of the CERB you received. If you incorrectly received the CERB, you should contact the CRA and arrange to pay it back before December 31, 2020 to avoid the slip being issued incorrectly. One important point to note is that tax is not withheld at the source with the CERB, which is unlike employment income if you receive a T4. This means that if you qualified for CERB for all 4 periods, you would have an additional $8,000 reported on your 2020 tax return with no tax on that income remitted to the CRA. The result is you will have to pay tax on that amount when you file your 2020 return. A good rule of thumb is to save 20% of your CERB payments if you can afford to do so. This will allow you to pay off the taxes on the CERB payments you received when you file your 2020 tax return. The tax rates on this income will vary across taxpayers based on your marginal tax rates, so 20% is just a general rule of thumb.
I withdrew some of my RRSP for emergency financial assistance over the last few months, what are the implications of doing this?
Similar to the CERB payments discussed above, RRSP withdrawals are treated as an income inclusion in the year they are withdrawn. This means you will need to pay tax on the amount you withdrew this year. Unlike the CERB, RRSP withdrawals of up to $5,000 are subject to withholding tax of 10%. That number rises to 20% if you withdraw between $5,001 and $15,000 and 30% if you withdraw more than $15,000. That means you’ve essentially prepaid some of the tax on this income, but it is important to budget accordingly so you do not have an unforeseen tax bill next April. You can still contribute to your RRSP later in the year based on your contribution room, but you have lost the contribution room of the amount withdrawn, which can lower your RRSP value at retirement. If you have not already withdrawn funds, but think you may need them, I would recommend pulling the money out of your TFSA instead. There are no tax implications to doing so (you have already paid tax on those funds) and you can always contribute the following year.
If you have any questions about the topics discussed above, or something that wasn’t, please don’t hesitate to reach out to a member of our team who would be happy to assist you.
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