What’s taxed and what’s not - Canadian Government Assistance Programs

Amid the COVID-19 outbreak, many Canadians are being impacted financially.  While the government has provided some relief with different assistance packages, I would like to take this chance to review some of these measures and the accompanying tax treatment. 

Income replacement and supplements

There are two wage subsidies:

1. Temporary Wage Subsidy for Employers

2. Canada Emergency Wage Subsidy (CEWS)

These subsidies provide employers assistance to keep eligible employees on their payrolls.  The subsidies are available for up to 3 months and 12 weeks.

Canada Emergency Response Benefit (CERB)

CERB replaces the short-lived emergency Support Benefit and Emergency Care Benefit and provides $2,000 every 4 weeks, for up to 16 weeks, to those who lost their income due to the COVID-19 pandemic.

It is noted that both wage subsidies and CERB are taxable. The wage subsidies are taxable to the employer.  Under the wage subsidies, employees continue to collect payments from their employers with source deductions (income tax, CPP, EI, etc.). On the other hand, the CERB benefit will be paid directly to the recipient by the government and won’t have source deductions.

It is important to note that individuals receiving pay from their employers who are receiving the CEWS cannot collect payment from the CERB program.  This is intended to prevent duplication of benefits received.

Tax-Free Benefits

Two sources of one time, tax-free payments are:

1.  GST/HST credit:

The GST/HST credit is a quarterly payment that helps low- and modest-income households offset some or all their GST/HST. A one-time special payment, starting on April 9, will be paid to eligible recipients. This payment will provide an average increase of roughly $400 for individuals and $600 for couples.

2.  Canada child benefit (CCB)

Recipients will receive an extra $300 for each child on their May 2020 payment.

Support for seniors

OAS and GIS

The government has announced one-time, tax-free top-ups to old age security (OAS) and guaranteed income supplement (GIS) recipients. OAS recipients will receive $300 and GIS recipients will receive $200.

RRIF Payments

The minimum withdrawal rate for those who are receiving RRIF payments has dropped by 25% for 2020. It’s important to note that the taxation of RRIF income hasn’t changed.  The required withholding tax at source won’t apply until RRIF payments exceed the original RRIF minimum.

Individual who has withdrawn RRIF payment amounts exceeding the reduced minimum will not be allowed to recontribute the excess amount withdrawn. 

Support for Students

Canada Emergency Student Benefit (CESB)

The federal government has announced a program that will give monthly payments of $1,250 to post-secondary students whose education and job prospects are disrupted by COVID-19

These payments will run from May through August.

The benefit can increase to $2,000 for people with disabilities or who care for others.

Canada Student Service Grant (CSSG)

If you’re a student who chooses to serve your community, the CSSG will provide up to $5,000 for your education in the fall. 

Where these benefits are taxable, many students won’t face tax since they have the federal basic personal tax credit to offset tax on the first $13,229 (in 2020) of income, plus tuition tax credits.

For students who have student loans, there’ll be an interest-free moratorium on repayment for all student loan borrowers until September 30, 2020. This includes those received under the Canada Student Loans Act, Canada Student Financial Assistance Act, and the Apprentice Loans Act.  During this time, no payments are required and interest won’t accrue. On such loans, interest paid in the current year or previous five years can be claimed as a tax credit. Since no interest will be paid during this period, the tax credit won’t be increased.

The deadline to file your personal tax return for the 2019 tax year was June 1, 2020.  Tax owed is due by September 1, 2020. Keep in mind that you can file your tax return and pay any tax balance owing separately and at different times.