Today we’ll take a look at how the various Covid-19 support programs, provided to both individuals and businesses, will affect their tax returns.
1. Support Programs for Individuals
Several programs were started to support individuals and their families during the Covid-19 pandemic. For most programs, the Canada Revenue Agency (CRA) will be issuing a T4A Statement of Pension, Retirement, Annuity and Other Income T4A slip to payment recipients.
Let’s take a look at how the various programs affect your return.
(a) Canada Emergency Response Benefit (CERB)
Funds received through CERB are taxable. Since tax was not withheld at source from these payments, taxes might be owing on them. You will get a T4A slip showing the total CERB amount received in 2020. This amount should be reported on line 13000 of the T1 income tax return.
If you have made a CERB repayment on or before December 31, 2020, then the CRA will reduce the taxable CERB amount on the T4A slip accordingly. The repaid amount doesn’t need to be reported separately on the T1 return.
CERB repayments made after December 31, 2020 will be reported on a 2021 T4A slip which will be issued in 2022.
(b) Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), Canada Recovery Caregiving Benefit (CRCB)
When CERB ended it was replaced by changes to the Employment Insurance (EI) system and the above mentioned three (3) new benefits.
All of these benefits are taxable and the CRA will issue a T4A slip to recipients showing the amount of each benefit received. This will be reported on line 13000 of the T1 return. Keep in mind that tax is withheld from these payments at 10% and this also needs to be reported on the T1 return.
For CRB only, you will need to repay 50 cents of the benefit for every dollar in net income you earned over $38,000 to a maximum of the CRB received in the year. Net income includes amounts which are normally included as net income for tax purposes along with any CERB, CRSB and CRCB payments received but not payments received via CRB. There will be some adjustments for split income and some repaid amounts.
Repaid amounts will not be included in your taxable income. They will be reconciled on the T1 return and the repayment will be incorporated in your total tax payable.
Remember that repayments based on net income are due at the same time as your T1 return for the year and interest will be charged on late repayments.
(c) Canada Emergency Student Benefit (CESB)
This program provided support to post-secondary students, recent post-secondary graduates and high school graduates who were unable to find work because of the Covid-19 pandemic. Payments received through this program are taxable. You will get a T4A tax slip for the amount received and it will need to be reported on your T1 return.
Any repayments made before December 31, 2020 will not be included on your T4A slip.
(d) Special One-Time Payments
The following special one-time payments were provided during the Covid-19 pandemic.
- One-Time OAS pension ($300) and GIS Payment ($200)
- One-Time payment to persons with disabilities (up to $600)
- One-Time GST Credit Payment
These one-time payments are not taxable or reportable.
(e) Foreign Benefits
Some people may have received funds from pandemic assistance programs offered by other countries. In such cases, the payments nature will need to be considered in view of the CRA’s tax rules to determine if the funds should be taxable or not.
For example, with regards to the U.S. Economic Impact Payment (USEIP) program, which provides refundable tax credits as emergency assistance for U.S. individuals, families and businesses affected by Covid-19, the CRA concluded that these payments would not be considered as a source of income and therefore, would not be taxable in the country. A similar decision was made about the payments received under the Hong Kong assistance program.
2.Support Programs for Businesses
(a) Canada Emergency Wage Subsidy (CEWS)
CEWS is taxable and employers must include the amount of CEWS received as taxable income on their personal, partnership or corporate tax returns.
In terms of timing, qualifying persons making the claim must include these payments in their taxable business income immediately before the end of the related claim period.
Consider a taxpayer who reports business income based on a December 31 year-end and applies for CEWS for periods 10 and 11 in February 2021. This taxpayer would report these payments as follows.
- The subsidy for period 10, which ended on December 19, 2020, on their 2020 tax return
- The subsidy for period 11, which ended on January 16, 2021, on their 2021 tax return
If the taxpayer changes their claim for period 10 after filing their 2020 return, they will need to change their 2020 return accordingly.
(b) Canada Emergency Rent Subsidy (CERS)
Payments received under CERS are taxable and qualifying persons making the claim must include them in their taxable business income immediately before the end of the related claim period.
(c) 10% Temporary Wage Subsidy (TWS)
The TWS allows eligible employers to reduce their payroll deduction remittances. The subsidy amount needs to be reported as income for the same year that source deduction remittances were decreased.
(d) Canada Emergency Business Account (CEBA)
Under this program, loans of up to $60,000 were made available to eligible businesses in two phases. Up to $20,000 of the loan amount may be forgiven if the programs conditions are met and the remaining loan balance is repaid by December 31, 2022.
The forgivable part of the loan is included in income in the year the loan was received. As these funds are intended to cover non-deferrable operating expenses of the business, the CRA allows the recipient to choose to reduce the amount of expense rather than include the amount in income. Although this increases taxable income, a deferral could result if the application of this rule reduces an expense in the following year.
If the loan is repaid after 2020, a deduction can be claimed at the time of repayment for the forgivable portion that was previously included in income.
(e) Canada Emergency Commercial Rent Assistance (CECRA)
This program offered forgivable loans to commercial property owners who reduced the rent for their eligible small business tenants.
As of December 31, 2020, these loans are forgivable as long as the programs conditions are met.
They appear to be taxable when received but if an amount was previously taxed and later needs to be repaid because the programs conditions were not met, then the repaid amount can be deducted at the time of repayment.
For any questions or queries or information on how these programs affect your particular situation, contact the team at Syed A. Raza Professional Corporation.