The 2020 tax filing season will be one of the most unusual and complicated on record, as taxpayers across the country assess and account for the numerous ways in which COVID-19 has altered their financial lives. From government subsidies and credits to unexpected fluctuations in employment income to the massive shift to work from home, almost everyone will have something new to confront in their filings this year. While the 2020 tax season doesn’t officially launch until Feb. 22, 2021 — the date on which the Canada Revenue Agency will start accepting electronically submitted income-tax returns — now is the time to start gearing up. With that in mind, here’s everything you need to know to file your taxes in the age of COVID.
As of this week, the deadline to file your income tax return remains at April 30, 2021. Self-employed taxpayers (and their spouse or partner) have until June 15, 2021. Last year, Canadians were given an extension to file their 2019 returns until June 1, 2020, with a payment deadline of Sept. 1, 2020 but, to date, no extensions for the 2020 tax season have been announced. CPA Canada has raised the issue of tax deadline extensions with the CRA and their discussions are ongoing.
Earlier this week, consultancy firm Cadesky Tax published preliminary responses from an online survey it conducted among over 500 CPAs in the greater Toronto area, which found that most accountants believe that an extension is needed. A minority objected, believing their clients will just delay and this year will become “another never-ending tax season.”
Managing partner Michael Cadesky said that the CRA is aware of the industry’s concerns and fully expects that a reasonable solution will be announced at some point. “Nobody benefits if the tax filing season becomes chaotic, which must be avoided,” says Cadesky.
Keep an eye out for these tax slips
You will receive a T4A (for benefits issued by the CRA) and/or a T4E (for benefits issued by Service Canada) tax slip in the mail with the information you need for your tax return. The CRA began mailing the slips last month and indicated that you should receive your T4A slip before March 10, 2021. You can also view these tax slips online in the CRA’s My Account. Residents of Quebec will also receive an RL-1 and/or T4EQ slip for their Quebec tax returns.
Each COVID benefit has its own box number (Box 197 to 204) on the T4A slip. If you received more than one benefit in 2020, you can confirm that the amounts are correct in the “COVID-19 Support Payment Application Details” using the CRA’s My Account.
The tax-free, the taxable, the withheld and the repayable
The government also delivered a number of one-time payments in 2020, including a one-time GST/HST credit payment, the one-time OAS pension ($300) and GIS payments ($200), and a one-time payment to persons with disabilities (up to $600). These amounts are all tax-free and should not be reported on the 2020 return.
Depending on your total 2020 income, you may owe some tax on your COVID benefits. This is particularly true if you received the CERB or CESB, since no tax was withheld when payments were issued, so there may be a balance owing when you file.
If you received the CRB, CRSB, or CRCB, 10 per cent tax was withheld at source, but this may not be sufficient, depending on what other income you earned in 2020. You can find the income tax deducted at source in Box 022 of your T4A slip, which should be included on line 43700 – Total income tax deducted.
In addition, if your 2020 net income was over $38,000, you may have to repay 50 per cent of CRB payments for every dollar in net income you earned above $38,000, to a maximum of the CRB received in the year. Net income for this purpose is line 23600 of the T1 return (with some minor adjustments), and includes any CERB, CRSB and CRCB payments received (but not payments received through the CRB.)
Jennifer Gorman, Social Care Manager for TurboTax Canada, says that if this is your first year facing a balance owing, you want to make sure you file by the deadline, even if you don’t have the cash to pay. “There are two separate penalties. You have interest that accrues if you don’t pay your balance, but there’s also a late-filing penalty,” explains Gorman. The late-filing penalty is five per cent of your balance owing, plus one per cent of the balance owing for each full month your return is late, to a maximum of 12 months.