If you got the CERB, No Tax Refund is Guaranteed
After a challenging year, the last thing you need is a surprise at tax time. While you may usually be counting on a tax refund at tax time, it might not happen this year if you received Federal support during the pandemic unless you set aside some extra money for income tax.
In an effort to give Canadians the financial support they needed due to Covid-19, the Federal government quickly put $2000 per month into the hands of 8 Million Canadians. While warned that the CERB (Canadian Emergency Relief Benefit) would be taxable income, many turned a blind eye to the fact that no tax was being taken at source. If you worked even part of the year in 2020 and you received the CERB, you may not have paid enough taxes in 2020 which will leave you with a surprise at tax time in the form of a much smaller refund or even taxes owing to CRA.
Here are some ways to help:
- Don’t make plans to spend your refund before you have your refund. First, determine if you are indeed receiving a refund. Draft your tax return. If you are entitled to a tax refund, don’t spend it before you receive it! In other words, wait for the money to arrive.
- Make yourself aware of all the tax breaks available to you in 2020. This year there is a new Digital News Subscription Tax Credit and even a home office tax break if you worked mostly from home due to the pandemic. All these credits can add up resulting in a bigger refund or reducing the taxes owing.
- Draft your return before the RSP tax deadline of March 1, 2021. If you owe, consider investing in an RSP to help reduce your taxable income. Your tax preparer or many tax programs can prepare scenarios for you to determine just how much you would need to invest to “break even”. Remember saving in a RRSP is also a good long term savings strategy.
- Pay attention to the income tax filing deadline and file your return on time. This is critical if you will have a balance owing to CRA. If you file late and you owe, CRA will charge you a late filing penalty which will only compound the problem.
- If you owe, make arrangements with CRA to repay the balance owing as soon as possible to avoid extra interest charges. CRA is committed to working with Canadians on repayment plans for taxes owing. However, be aware that CRA has the ability to offset future GST refunds, other tax refunds and credits to pay off any amount owing.