CERB: How will it affect your income tax?
Did you receive the Canada Emergency Response Benefit (CERB)? If so, did you know that this is a taxable benefit? Here’s what you need to know about how it will impact your income tax.
1. CERB payments will simply be added to your yearly taxable income.
Since the Canada Revenue Agency (CRA) did not withhold any taxes at source on these benefits, you will have to pay income taxes on the total amount received.
In order to avoid unpleasant surprises and make sure your finances are in order, it’s a good idea to estimate the amount of income tax you will have to pay. Thankfully, several income tax calculators are available online. Simply add all your yearly sources of taxable income as well as any taxes not withheld at source.
2. If possible, put money away to cover this amount.
The best way is to start saving a little bit every week.
3. RRSP contributions will likely have little impact on your income tax.
Did the pandemic drastically affect your income? Was the CERB your main source of income? In most cases, contributing to your registered retirement savings plan (RRSP) will not significantly reduce the amount of income tax you will have to pay.
Moreover, if your income is expected to increase over the next few years, it’s probably best to carry over your contribution room.
That being said, the best idea is to speak to an accountant or a financial advisor who will help you prepare a plan adapted to your situation.
4. Be sure to explore every income tax deduction and credit option.
Speak to an accountant to make sure you are getting all your deductions and credits. Since your situation changes over time, you may become eligible for tax credits.
5. If you aren’t able to pay your income tax this year, contact the CRA directly.
In light of the current situation, you may not be able to pay your income tax by the prescribed deadline. Upon receiving your notice of assessment, contact the CRA. Explain your situation and see what your payment options are. This will avoid you having to pay interest and, most importantly, ensure your peace of mind.
Note: This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your advisor. SSQ Insurance cannot be held responsible for any decision made as a result of reading this blog post.