It’s a good idea every year to prepare for what your tax situation is going to look like come tax time, but this year it’s even more important than usual. The Covid-19 pandemic has played havoc with everyone’s finances; people have had reduced income, we’ve had income from unusual sources (like government benefit plans), some people have been forced to dip into savings and RRSPs or sell assets, and this can all affect your tax picture.
Don’t Wait – Plan Now
Per Newswire, ""I urge all Canadians, and particularly individuals and businesses directly impacted by the pandemic, not to wait until April to start looking at their finances from a tax planning perspective," says Mr. [Jamie] Golombek. "Make use of the time available to plan ahead to help avoid any surprises at tax time.""
Here is Mr. Golombek talking about the upcoming tax season in a short video.
Government Benefits Are Taxable
Of special interest might be the income tax owing on government benefits received, like the Canada Emergency Response Benefit (CERB).
Per the Newswire story again, "For those who received the Canada Emergency Response Benefit (CERB), the government will be issuing a T4A tax reporting slip for 2020 showing the total amount of funds received. This must be reported as income on 2020 returns, and since no tax was deducted at source from CERB payments, taxes may need to be paid on these amounts."
The Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), and the Canada Recovery Caregiving Benefit (CRCB) were all taxed at 10%, but that might not be enough to cover income taxes owing on these benefits.
Cashed-Out RRSPs Will Probably Have Tax Owing
Another item to be aware of for tax time is any withdrawals you might have made from your RRSPs for anything other than purchasing a house or education. You need to be aware that you will be required to pay income tax on this money. On the plus side, if your income is low for 2020, you’ll be taxed at a lower rate than if your income was higher.
Per Bloomberg, "As the year nears its end, it’s becoming clear to many that 2020 will be a low income year… Unless the funds are used to purchase a first home or continuing education, any amount taken out is taxed according to your income in the year it is withdrawn."
Shaw & Associates Will Help You Prepare
Whatever your financial situation was in 2020, now is the time to sit down with accounting professionals like Shaw & Associates and make your plans for the upcoming tax season—no one wants a huge surprise tax bill.
Contact Shaw & Associates Chartered Accountants for accounting help you can count on. One complimentary meeting with us will put you and your business on a more profitable and positive path.