The Canada Emergency Response Benefit (CERB) provides COVID-19 job-affected citizens with money to get by. Any income from employment will not be clawed back, but if you earn more than $1,000 per four-week period, you are not eligible for the CERB for this period.

There is a worrying misconception that all funds received are for spending. It is critical to note that next year, the government will take some of it back as per their CERB page. “The Benefit is taxable – you will be expected to report it as income when you file your income tax for the 2020 tax year,” the page reads.

Do Calculate The Tax On It

Due to varying income tax levels, provincial income tax rates and territorial income tax rates, the government can not deduct the individual’s taxable amount off each amount. The lowest tax rate for 2020, at Federal level, is 15 per cent. Earnings of $48,535 and below (total per annum) will owe tax on their CERB monies at that rate.

Here are a wide range of examples:

  • The Nunavut government will take $320 on $8,000 CERB (if less than $46,278 earned in 2020).
  • A Quebecer with $1,200 taken on $8000 if less than $44,545 earned in 2020).
  • an Albertan will have to pay an extra $800 on $8000 CERB (if less than $131,220 2020 earnings),
  • An Ontarian will owe $404 more on an $8,000 CERB (less than $44,741 2020 earnings)
  • A British Columbian will be required to pay $404.80 (less than $41,725 2020 earnings).

Do Calculate Total Earnings

The exact balance due is based on the outcome of all your income and deductions. If you earn enough to qualify for CERB but less than the necessary personal amount (currently $12,069 but may increase to $13,229) then no income tax will be deducted from their CERB benefits. It would help if you totaled your employment income, income earned from other work (your side hustle), income from other sources AND the CERB payments.

Back to examples:

  • An Ontarian who had $50,000 income in 2020 and $8,000 CERB will have two tax brackets.
    • Federal tax rate on the first $48,535 is 15%
    • Provincial tax rate for Ontario is 5.05% on the first $44,740.
      • Therefore for the first $44,740 you will be taxed 20.05%, or $8,970.37.
    • For the next $3,795 the federal tax stands at 15%
    • The provincial tax is 9.15%.
      • Therefore you will pay another $916.5 in taxes.
    • The federal tax is 20.5% for the remaining amount of $9,465
    • The provincial tax is 9.15%
      • Therefore the tax rate for that portion will be 29.65%, or $2,806.37.
    • The total taxes paid on an income of $58,000 is $12,693.24.
    • NOTE: to work out your tax on the CERB that you received you use the HIGHEST tax rate shown above viz. 29.65%, or $2,372 on $8000.
  • The calculations including the CORRECT deductions and/or credits can be very complex hence to ensure you are maximising your tax claims it is recommended you use a tax professional.

Don’t Keep CERB If Inappropriate

Why would you send the CERB back you ask? The Canada.ca site gives the CERB definition thus: “The CERB will cover people who have lost their job or have less than $1,000 of income in four weeks, workers who have exhausted EI benefits, people who are sick or quarantined, and parents who must stay home without pay to care for children because of COVID-19. It will cover employees, contract workers, and self-employed workers. To qualify, applicants must have had $5,000 in employment income, self-employment income, or maternity or parental leave benefits for 2019 or in the 12 months preceding the day they make the application.”

Unfortunately, it does not cover students who couldn’t land a summer job, seasonal workers who did not get EI payments after Dec 29, 2019, those who were already unemployed and not qualifying for EI payments.

You may only receive income of $1,000 during four weeks while receiving the CERB and if you earn more than that you do not qualify during that period.

If your situation has changed since you first applied or you made an unwitting mistake when applying, then you must take immediate steps to return the applicable portion of funds.  If you are found to be ineligible later, it will be claimed back. Some individuals have received multiple payments in error or even funds that they did not apply for.  The repayment process must commence ASAP.  The government website gives the process here https://www.canada.ca/en/revenue-agency/services/benefits/apply-for-cerb-with-cra/return-payment.html#h4

If the CERB is repaid, the CRA won’t issue a T4A for that payment. To ensure that the correct slips are issued repay your CERB before 31 December, 2020.

If you need assistance with any CERB tax calculations, qualification questions or total tax outcome calculations contact Accounting Reimagined today online or P: 1-888-789-4839, M: 778-897-0171 or E: info@accountingreimagined.ca

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