Tax Implications of COVID-19 related Government Benefits for Individuals

With 2020 behind us and the COVID-19 vaccines being approved and becoming available to the public, we hope that life will return to normalcy early in 2021. It is therefore a good time for us to discuss the tax implications of various government grant and subsidy programs so that there is no surprise at the time of filing your 2020 personal income tax returns.

Here is a list of some of the programs and their income tax implications:

  • Individuals receiving CERB (Canada Emergency Relief Benefit) will receive a T4A slip for the funds they received in 2020. This amount has to be reported as income on their 2020 income tax return and will be added to their income from all sources for the year. This amount will be taxed on the reporting individual’s marginal tax rate for the year.
  • If you were a student and received CESB (Canada Emergency Student Benefit) in 2020, the amount will be taxable and added to your income for the year. There was no tax withheld at the source on the CESB payments.
  • If you did not qualify for EI (Employment Insurance), you may have qualified for and received CRB (Canada Recovery Benefit). Although CRB payments were subject to 10% withholding tax, that amount may not be enough to cover the tax liability arising from receiving the benefit. The tax payable by the individuals will depend on their marginal tax rate. However, if you make over $38,000 for the year (before CRB), you may have to pay back the benefit received at $0.50 for every dollar received in excess of this amount. If you received EI, you will be receiving a T4E slip, which you need to report as income for the year.
  • Individuals who qualified and received CRSB (Canada Recovery Sickness Benefit) were subject to a 10% withholding tax. The amount received will be added to the taxpayer’s income for the year and taxed at their marginal tax rate.
  • CRCB (Canada Recovery Caregiver Benefit) was also subject to a 10% withholding tax. The amount received will be added to the taxpayer’s income for the year and taxed at their marginal tax rate. If you have received government benefits from one or more sources during 2020, it is highly recommended that you calculate your total income for the year and estimate your tax liability for the year, so that you have funds set aside to pay your tax bill. For expert advice and questions, please contact your CPA or you can reach us by email at msheikh@moaaz.ca.

Moaaz Sheikh, MBA, CA, CPA

Moaaz Sheikh obtained his CA designation in 1999 while working for PwC in Toronto. He subsequently worked for Magna International as a cost estimator and program accountant for over 3 years. Moaaz has an MBA with a specialization in marketing and has extensive experience working in his family’s business. This unique background enables Moaaz to better understand his client’s Taxation, Accounting, and Business needs.

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