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The federal government used the Canadian Emergency Response Benefit (CERB) to help the households that lost wages as a result of the COVID-19 pandemic. The program initially enabled those who stopped working because of COVID-19 to receive a sum of $2,000 over a four-week period.

As the pandemic got worse and more people were affected for longer periods of time, the government extended the program and now allows households to receive money over a period of 24 weeks, supplementing their income by up to $12,000.

But are CERB payments tax-free? Should you set aside some money to ensure that you can pay your CERB taxes? Read on to find out.

CERB Is a Taxable Payment

Is CERB Taxable? Yes, you will have to pay provincial and federal tax for the CERB payments you received. CERB payments are taxed at the same rate as your employment income.

Using the federal tax rates provided by the Canadian Revenue Agency (CRA), you can calculate your taxes according to the following formula:

  • 15% for the first $49,020 of taxable income, adding
  • 20.5% for the following $49,020 of taxable income (taxable income you earned over 49,020 and $98,040), adding
  • 26% for the following $53,939 of taxable income (the money you earned over $98,040 but up to $151,978) adding
  • 29% for the following $64,533 of taxable income (the money you earned over $151,978 but up to $216,511), adding
  • 33% of anything you earned over $216,511

CESB Tax for Students

Students received financial help in the form of the Canada Emergency Student Benefit (CESB). CESB is also a taxable payment. Students will pay tax for their CESB payments as they would for other student employment income.

As a result, students should consider this when determining how to use their tuition deductions.

Why Is CERB Money Taxed?

At a first glance, it might seem odd to pay tax on payments you receive from the government. It may seem counterproductive for the government to be paying you and taking away part of your income at the same.

But the truth is that the government taxes CERB just as it taxes the other benefits it offers, such as Old Age Security or Employment Insurance. The government does this to be fair to every citizen’s individual circumstances.

The CERB payments you receive depend on your low employment and self-employment income. But you can still earn money from other sources, such as investments, taxable insurance benefits, and so on.

By taxing the CERB payments, the government is ensuring that every Canadian is paying back their taxes according to their overall income.

When Must I Pay My CERB Taxes?

You must pay your CERB taxes when you file your 2020 taxes. You should file your 2020 taxes by April 30, 2021, but that deadline might be extended due to the current circumstances.

What If I Didn’t Save For My CERB Taxes?

Your taxes are still due, whether you saved for them or not. They will incur interest until they’re paid in full. You may be able to benefit from the CRA’s taxpayer relief provisions and have your tax penalties canceled or waived.

The CRA may require you to consider taking out a loan in order to pay your outstanding taxes. However, you should only do this if you can borrow at low-interest rates. You shouldn’t take out a high-cost loan because doing so could lead to other financial difficulties.

You could also pay your taxes using a credit card. However, you should only do this if you have a plan to pay off your credit card debt as soon as possible.

Alternatively, filing a Consumer Proposal to your creditors, including CRA, would allow you to get out of your tax debt, including Personal Income Tax and HST.

Wrap up

Filing Taxes takes a personal approach to tax management. We take the time to study and understand your financial situation and provide you with options that will benefit you the most. For advice and assistance with tax planning, a CRA tax dispute, or other tax issues, get in touch with Filing Taxes today to see how we can help. Experts at Filing Taxes will be happy to assist business owners in this pursuit. To speak with an experienced accountant, contact Filing Taxes either at 416-479-8532 or [email protected]. Schedule an NTR engagement appointment with us and take the first step towards proper management of your finances.

Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.

Salman Rundhawa
Salman Rundhawa
Salman Rundhawa is the founder of Filing Taxes. Salman provides valuable tax planning, accounting, and income tax preparation services in Toronto, Mississauga, Oakville, and Hamilton.

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