Accountants are not completely certain how the various government benefits being received by individuals and businesses during the pandemic will affect their tax bill next year. However what will be certain is that if the benefit is a taxable benefit then you need to be prepared to pay tax on it in 2021 when you file your 2020 tax return.
As of April 2020 here is the information available from the CRA website and current legislation.
1. For Individuals
- Any CERB payments are taxable, any payments that you have received will have to entered onto your tax return and an information slip will be available to you next year in MyAccount under Information slips so that you can enter your income in the correct boxes on your tax return.
- One time additional payments for the Canada Child Benefit and the GST/HST tax credit are tax free and it is not expected that this will change in 2020. The GST payment is also tax free and it is not expected that this will change.
- If your student loan payments have been suspended then you will probably not have as much allowable student loan interest to claim on your income tax return as long as it is a qualifying student loan per CRA guidelines.
- Deferred payments under mortgage support are added to the outstanding principal balance and are repaid over the life of the mortgage. The mortgage support system is managed specifically by your lender and any deferral of payments is an arrangement between you and them. The only impact on your taxes might be experienced by those who are self-employed who are able to claim business use or use of home expenses on their tax return.
- The minimum withdrawal limit under the RRIF has been reduced by 25% for 2020 which means that if you take out less money you will pay less tax as money in your RRIF is only taxable when it is withdrawn.
2. For Businesses
- Tax credits and other benefits provided by the government still apply so any money received as a wage subsidy is considered government assistance and is included in the employers taxable income. If you apply for the CEWS benefit you need to understand the tax implications of receiving this benefit. The subsidy must be noted in your bookkeeping records and will become part of your business income that you report on your T2125.
- The TEWS or Temporary Wage Subsidy will be recorded in the same way. The subsidies are a reduction in the amount that you send to the government for income taxes that you withheld from your employees and it becomes income for your business.
It is paramount that you keep accurate accounting records throughout 2020 as they will be very important when you do your tax return in 2021.
From an article by Susan Watkin