For those that needed government help during the pandemic and have received the Canada Recovery Benefit (CRB) then you may have a tax problem when you file your income taxes.
The Canada Recovery Benefit (CRB) - What is It?
The Canada Recovery Benefit (CRB) gives income support to employed and self-employed individuals who are directly affected by COVID-19 and are not entitled to Employment Insurance (EI) benefits in the amount of $500.00 per week less $50 in income tax. The CRB is administered by the Canada Revenue Agency (CRA).The eligibility periods begin on September 27, 2020 and end on September 25, 2021.
To be eligible, the applicant must meet the following 5 criteria:
• SIN – have a valid social insurance number;
• Age – be at least 15 years of age on the first day of the two-week period;
• Residency – be resident and present in Canada during the two-week period;
• Current benefits – for the period, did not apply for or receive the other two Canada
recovery benefits, short term disability benefits, workers’ compensation benefits, EI
benefits, or QPP benefits;
• Prior earnings – have had, for 2019, or in the 12-month period preceding the day on
which they make the application, a total income of at least $5,000 from employment,
self-employment on a net income basis, parental benefits, or income prescribed by legislation.
For 2021, claims, the additional option of using 2020 income will be available. So 2020 income becomes important to have at least $5,000 employment income or net income (sales less expenses) for self employed individuals.
In addition to the general requirements above, the applicant must have had their average
weekly income decline, for reasons related to COVID-19, by at least 50% as compared to their total average weekly income for 2019 or the 12-month period preceding the application.
For 2021 claims, the additional option of using average weekly income for 2020 is available. The applicant also cannot have been eligible for regular EI benefits.
Applicants who have voluntarily ceased to work, unless the cessation was reasonable, or
failed to return to work when it was possible and reasonable to do so, can also become
ineligible. Also, they must have been seeking work during the benefit period, and cannot have placed undue restrictions on work availability during the period.
Benefit Weeks Available Increased
The benefit is available for a maximum of 38 weeks (announced Feb 19, 2021). This maximum can be reduced if the applicant refuses to go back to work when it is reasonable and possible to do so.
Claw Back -Watch Out!
The applicant must repay 50% of income earned in that year above $38,000, up to the total amount of CRB received by them in the year. In general, income for this purpose is income as defined in the Income Tax Act, excluding benefits paid under CRB.
Tax Solution
For those that can afford to do a RRSP loan and then buying RRSP's would be the solution here to bring your income down to $38,000, if you have RRSP room available and can afford to do so.
Thus, say your income is $48,000 and you received $6,000 in CRB, the government would claw back the lower of $48,000 less $38,000 (exemption) or $10,000 or the amount of CRB Received which is only $6,000 in this example. Therefore, the claw back would be $6,000 at 50% or $3,000 would need to be repaid at tax time back to the government.
However, if you bought a RRSP for $10,000 to bring your income to $38,000 you would receive approximately 21% back as a as tax refund in Ontario or $2,100, plus save the $3,000 claw back you would effectively save $5,100. In addition, you would receive additional Canada Child Benefit CCB and/or the GST Credit potentially as social assistance programs.
So if you then applied all your refund $2,100 in Ontario and the potential tax savings of not having to pay the 50% tax back ($3,000) and put it towards the loan then you would then have a $4,900 RRSP loan remaining ($10,000 less $5,100) and own a $10,000 RRSP asset.
So if you can afford it and have received CRB, this is the time to do a RRSP to bring your income down to $38,000 (if possible). The RRSP deadline this year is March 1, 2021.
I hope you enjoyed reading this and I hope it helped you save some money.
If you have any questions or comments, I would be happy to assist you. Please call me at 905-898-3355 or email peter@taxhome.net
February 20, 2021
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