2020 has been a difficult year for most of us. The closure of international borders and social distancing to curb the spread of COVID-19 has had a devastating effect on the world’s economies. Many Canadians have lost their jobs or have seen their businesses contract due to the pandemic. In response, the federal government implemented multi-billion-dollar stimulus programs to help businesses and individuals. These programs have helped Canadians weather the storm, but what many taxpayers don’t realize is that the subsidies and benefits they received are taxable. 

Which benefits are taxable?

The quick answer to this question is that if you received an amount from the Government of Canada as part of its COVID-19 programs and don’t have to repay it, you are going to have to pay income tax on the subsidy or benefit when you file your 2020 income tax return during the 2021 tax filing season.

The Canada Emergency Wage Subsidy (CEWS) and the Temporary Wage Subsidy (TWS) have helped many businesses keep their doors open and continue to pay their employees. But the subsidies received by employers are taxable and will need to be reported on the employer’s 2020 income tax return as income. Forgivable loans, including the forgivable portion of the Canada Emergency Business Account (CEBA) and the Canada Emergency Commercial Rent Assistance (CECRA) program are also taxable to the recipient. The Canada Emergency Response Benefit (CERB) and the Canada Emergency Student Benefit (CESB) paid to individuals are also taxable to the recipients.

Didn’t the government already withhold taxes from these benefits?

Unlike employment income, where your employer is required to withhold amounts for income tax, no tax is withheld on any of the COVID benefits and subsidies. The CRA will collect all of the taxes owing on these benefits and subsidies when you file your 2020 income tax return in 2021.

Will the CRA just correct fix things if they are incorrect?

Yes, but if the CRA discovers the error before you do, it could assess significant penalties to the amount that you have to repay. For example: if the CRA thinks that you were grossly negligent when you claimed the CEWS they could assess a penalty of up to 50% of the difference between the amount of wage subsidy that you claimed and the amount of wage subsidy to which you were actually entitled.

The various COVID-19 benefit and subsidy programs were relatively quick and easy to apply for and did not require much verification during the application process.  As such, the government is now shifting its focus to verifying those claims made and processed.  Now is a good time to ask yourself the question, “Am I sure I qualified for that program benefit?” Check out the federal government’s website for the program to review the conditions to make sure you really do qualify for that benefit or subsidy.

What can you do in advance of the next filing season?

How can you avoid a tax nightmare come next April? No one likes surprises at tax time. If you’ve received taxable government assistance, start putting money aside to make sure you have the funds on hand to pay your tax bill.

If you received one of the government’s COVID benefits and realize that you were not entitled to it, you can repay the benefit now rather than wait. For example, if you received the CERB and you were not entitled to it you can repay it now by using your CRA My Account.

Let RHN help prevent a tax nightmare for you. We can help you navigate the various programs and even complete and submit your application for you to make sure it is done properly. We can also assist you by providing you with an effective tax reduction strategy.

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This post has been prepared for general information purposes. It is not advice. The information presented may not fit your unique situation, please consult one of our trusted business advisors at RHN CPA for further clarification and interpretation of your circumstances.