Yes, there was a federal budget this week. And yes, it's full of all kinds of goodies, including proposals for personal taxes. But until these become law, they are still just "proposals" and have no impact on your 2020 tax return for now. In the meantime, the April 30 tax-filing deadline is fast approaching, and even though we are facing the same sort of challenges arising from the Covid pandemic today that we faced last year, the Canada Revenue Agency (CRA) has decided not to extend the tax filing deadlines. So what do you need to know? Here are some tips for completing your 2020 tax return, and a summary some of the changes from last year.
The CRA is actively encouraging Canadians to file their return electronically, and as soon as possible. If you choose to file a paper return, it is likely that your assessment will be slower than usual and potentially affect your ability to get any refund, benefit, or credit payments on a timely basis.
In fact, the CRA says it may take 10-12 weeks for it to process and issue your assessment due to limited staff onsite in the tax centers (a large percentage of CRA staff is also working from home as well). So consider filing online rather than through the mail (online filing for the 2020 tax year opened on Feb. 22). And the flip side of this is to sign up for direct deposit so you can get access to your refund and other benefits faster. You can do this through the CRA My Account page.
Reporting Covid benefits
According to the CRA, more than 27 million Canada Emergency Response Benefit (CERB) applications were made, totaling more than $81 billion in payments to Canadians. The CRA also processed more than 2 million Canada Emergency Student Benefit (CESB) applications that totaled more than $2 billion in payments.
If you were one of those applicants, then you will need to review your records because you will be required to include as income any amounts you received under any one of the following programs: CERB; CESB; Canada Recovery Benefit (CRB); Canada Recovery Sickness Benefit (CRSB); or Canada Recovery Caregiving Benefit (CRCB) payments.
You may have already received T4A slips for benefits issued by the CRA and/or T4E slips for benefits issued by Service Canada. If you received beneftis but have not received these slips by mail, you can view them slips online by logging into CRA My Account. Residents of Quebec will receive both a T4A and RL-1 slip from the CRA, however, apparently the RL-1 slip will not be available for viewing in CRA My Account.
So what do these slips mean? Well, recall that when these relief measures were announced last year, tax advisors across the country (myself included) warned Canadians that these amounts received will be subject to income tax. If you received the CERB or CESB, no tax was withheld by the CRA when payments were made to you, which means that you will likely have a tax bill for the year (unless you have other credits or deductions that can offset such amounts). If you received the CRB, CRSB, or CRCB, 10% tax was withheld at source - so your tax bill may not be as much if you only received the CERB or CESB.
Depending on how much income you earned from all sources, and what deductions and credits you are entitled to claim in 2020, you may owe tax or be entitled to a refund. And if you received benefits from a province or territory, those amounts should also be entered on your tax return.
The government has always stated that there would be no penalties or interest in cases where CERB needs to be repaid. Moreover, if repaying the CERB could present a significant financial hardship, the CRA will provide more time and flexibility to repay based on your ability to pay.
Moreover, the government announced in early February that targeted interest relief will be provided if you claimed Covid-related benefits. So if you filed your 2020 income tax and benefit return, and owe tax, you will not be required to pay interest on any outstanding income tax owing for the 2020 tax year until April 30, 2022.
You may have also read recently that the CRA has changed its rules for CERB and will not require self-employed individuals to repay the CERB if they would have qualified based on their gross income (instead of net income) and provided they also met all other eligibility requirements. The same approach will apply whether the individual applied through the CRA or Service Canada. If you are a self-employed individual who already voluntarily repaid the CERB, you can contact the CRA to have such repaid amounts returned to you.
New tax breaks
Here are some changes that were announced last year (these pre-date any proposals made in the recent federal budget).
Relief for families with young children: Back on Nov. 30, 2020, the government announced immediate support for families with young children. For 2021, families will be entitled to four tax-free payments of $300 per child under the age of six, provided that the families are entitled to the Canada Child Benefit (CCB) and have family net income equal to or less than $120,000. For those families entitled to the CCB with family net income above $120,000, the tax-free payment will be $150 per child under the age of six. The first two payments would be based on the family's net income in 2019 while the last two payments will be based on the family's net income in 2020. You must file their tax returns for these years to receive all four payments.
Canada training credit: If at the end of 2020, you were 26 years of age or older (up to 66 years of age) and you have a Canada training credit limit for 2020 on your latest notice of assessment or reassessment for 2019, you may be eligible to claim this refundable tax credit for up to half of your eligible tuition and other fees paid to an eligible educational institution in Canada for courses you took in 2020, or fees you paid to certain bodies for an occupational, trade or professional examination taken in 2020.
Digital news subscription tax credit: For the 2020 to 2024 tax years, you may be able to claim a non-refundable tax credit for expenses if you paid for a qualifying digital news subscription with a qualified Canadian journalism organization.
Previously published in The Fund Library on April 20, 2021 by tax and estate planning lawyer, Samantha Prasad. Portions of this article first appeared in The TaxLetter, ©2021 by MPL Communications Ltd. Used with permission.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.