Tax Implications of the Canadian Emergency Wage Subsidy (CEWS)

The COVID-19 pandemic took the world by storm and placed many businesses, especially small ones, in a precarious position of losing revenue and long-term closures. Luckily, in Canada, the government stepped in and offered the CEWS in order to help businesses keep their heads above water.

Now that these relief programs are in full swing, many individuals and business owners are wondering how this benefit money is going to affect their 2020 income tax return. The simple answer for business owners is: The CEWS is taxable income. When it comes to filing time, this money will be included in your business’ income. However, there is more to claiming the CEWS than simply including it in your taxes.

Read on to learn what the CEWS is, how it will affect your return and what to do if your business is audited in relation to this wage subsidy:

What is the CEWS?

In order to help businesses during the COVID-19 shutdown in 2020, the Canadian government offered the Canadian Emergency Wage Subsidy (CEWS) to help cover part of their employee’s wages due to drops in business revenue.

The subsidy was designed to help employers re-hire workers, prevent further job loss and ease their business back into normal operations.

The CEWS was available to taxable corporations such as individuals, non-profits, registered charities and other eligible entities and was provided over a 12 week period, divided into three qualifying periods.

Is the CEWS Taxable?

The CEWS, as a wage subsidy, is considered to be government assistance and therefore must be included in the employer’s taxable income.

The amount of CEWS received by an employer for a qualifying period will be included in the employer’s income. 

Employers will be entitled to a deduction for the amount of remuneration paid to employees but the amount of CEWS received will reduce any remuneration expenses eligible for tax credits calculated on the same remuneration.

Eligible remuneration for the CEWS includes salary, wages, fees, commissions and other remuneration such as taxable benefits – basically, anything subject to income tax withholdings.

However, this excludes retiring allowances and stock option benefits.

Claiming the CEWS on Your Income Tax Return

When it comes to the wage subsidy, there are no special withholding requirements on behalf of the employer.

All amounts paid to employees through the CEWS are considered regular employment income that is subject to regular withholdings such as income tax, CPP (Canada Pension Plan) contributions and Employment Insurance Premiums.

To accommodate for government relief programs during the COVID-19 pandemic, the Canada Revenue Agency (CRA) has published new T4 reporting requirements for the 2020 tax year.

The CRA will be using a new code system to identify employment income made to eligible employees during particular CEWS periods.

Therefore, employers will be required to provide additional information in order to help the CRA validate payments under the CEWS, CERB (Canada Emergency Wage Subsidy) and the CESB (Canada Emergency Student Benefit).

This information, in addition to reporting regular employment income in Box 14/Code 71, employers will need to use these new codes in the “Other Information” section at the bottom of the T4 slip according to the period in which they apply:

  • T4 Code 57 – Periods 1 and 2 – March 15 to May 9, 2020
  • T4 Code 58 – Periods 3 and 4 – May 10 to July 4, 2020
  • T4 Code 59 – Periods 5 and 6 – July 5 to August 29, 2020
  • T4 Code 60 – Period 7 – August 30 to September 26, 2020

The CRA may release new codes to cover the additional periods in the extended CEWS program.

These new T4 requirements apply to all employers, not just those who collected the CEWS.

When it comes time to prepare your 2020 taxes for your business, Liu & Associates will be available to help you navigate this new filing process.

Contact Our Team

Preparing for a CEWS Audit

Beginning in September of 2020, the CRA began issuing audit request letters to businesses who had been claiming the CEWS.

Their intent with these audits was to identify the types and levels of non-compliance in preparation for larger-scale audits.

When performing a CEWS audit, the government is looking to make sure the relief benefits went to companies that were eligible for them.

These “mini-audits” required that companies provide the government with pertinent information within a timeline of 10 days.

While larger-scale audits may end up operating differently, it is worth it for you (and your business) to always have the following information ready and available:

  • Documents from the employer’s minute books (i.e., anything related to the CEWS claim).
  • 2019 tax information (revenues, general ledger, revenue journal entries).
  • 2020 tax information (same as above)
  • Information used to compute the CEWS revenue decline percentages.
  • General payroll information (source deductions, contracts, proofs of payment, etc.).
  • Information related to other subsidies/government programs (i.e., Temporary Wage Subsidy).
  • A signed copy of the CEWS Attestation Form.
  • Documents that support any exceptions or elections utilized for CEWS.
  • Remuneration exclusions.
  • Qualifying revenue exclusions.

These requirements can be complex and extensive and failure to provide full compliance can result in a “gross negligence penalty” – which can be up to 50% of the difference between the amount of CEWS claimed and the amount of CEWS entitled.

If your business does receive an audit letter in relation to the CEWS, it is highly recommended that you consult an expert accountant to help you identify and organize CEWS calculations, claims and filing processes.

To get more information on how to handle a CEWS audit, please contact our expert accountants at Liu & Associates.

Don’t Leave Anything to Chance

While the CEWS was a life-saver for many businesses, it is certainly going to cause some challenges and confusion at tax time.

Don’t leave the health of your business to chance! It is recommended that you consult with a tax expert to ensure that your taxes, especially in relation to employee remuneration, are filled out properly and accurately.

Feel free to contact Liu & Associates with any questions you may have!

Contact Us

Tax Implications of the Canadian Emergency Response Benefit (CERB)

While most people are hoping for brighter prospects in 2021 many Canadians are going to be approaching their taxes with an additional income to consider, which may cause some confusion and financial hardship. The best way to avoid this is to take the time now to consider what implications the CERB will have on your taxes in 2021.

With a little foresight and proactivity, you will be better prepared to tackle your 2021 tax return and pay the owing taxes on your CERB payments. In this article, we’re going to go over what the CERB is, how it’s going to be taxed and how you can plan ahead for CERB-related tax implications:

What is the CERB?

In response to the COVID-19 pandemic that shut down our entire country earlier this year, the government offered assistance through a program called the Canadian Emergency Response Benefit (CERB). This program provided Canadians with up to $8000 worth of relief funds between March 15, 2020, and September 26, 2020, if they were unable to work due to the pandemic.

After that period of time, the CERB was rolled over into the Employment Insurance program. The CRA did not withhold any taxes on CERB payouts so many Canadians are left to wonder exactly how this income is going to affect the taxes they file in 2021.

The answer is pretty straightforward as long as you know how income is taxed.

How Much Can the CRA Tax the CERB?

The tax rate on the CERB payments will depend on your total earnings in 2020. You can estimate your taxes by adding together your employment income (including any self-employed income), income from other sources and your CERB payments.

Basically, the CERB is taxable income but it was not taxed when it was given to you – this is why determining the tax rate is important. For example, if you earned $40,000 (after taxes) through employable income and $8000 in CERB in 2020, your taxable income is $48,000.

That total will determine under which federal and provincial tax brackets you fall into. For example, the federal tax rate on the first $48,535 is 15%. Anything you earn above that amount is taxed in a higher bracket.

You also have to consider provincial tax rates, which differ from province to province. Here are the provincial tax brackets for Alberta:

  • $131,220 or less = 10%
  • $131,220.01 to $157,464 = 12%
  • $157,464.01 to $209,952 = 13%
  • $209,952.01 to $314,928 = 14%
  • $314,928.01 and up = 15%

To use our example above, you would determine the tax rate based on the total of earned income and CERB, which would be $48,000. This amount would be taxed federally at 15% and provincially (in Alberta) at 10%. The total tax rate works to 25%.

To determine the tax on your CERB, take that marginal tax rate of 25% and apply it to the amount of CERB received. If the full $8000 in CERB was claimed, the taxes would equal $2000. The total taxes owing in this example would be $12,000 but, since the CERB was not taxed, you are guaranteed to owe that $2000.

Keep in mind that this is a simple calculation that does not take into consideration any tax credits or deductions, which would certainly apply to your earned income. That being said, expect to pay the taxes on CERB. 

How to Plan Ahead for CERB-Related Tax Implications

At Liu & Associates, we strongly urge you to start planning for the next tax year as soon as possible. Don’t wait until April of 2021 to start getting your financial affairs in order.

First and foremost, you should prepare for owing taxes on the CERB by setting aside whatever money you can. By using the numbers given above (you can check your province’s tax brackets here), you can estimate how much in taxes you could be owing.

For many families, the CERB presented a reduction in monthly income. In these cases, it is best to look at budgeting and debt management to ensure the owing taxes will be available next year.

Our expert accountants at Liu & Associates want to help you keep your finances on track. If you have any questions or concerns regarding your plan to pay the CERB taxes, please don’t hesitate to get in touch!

Get in Touch

 

How to File Your Taxes with CERB Payments

When tax time rolls around, those who claimed the CERB will receive a T4A from the government for 2020 indicating the total amount of funds received.

This amount will be claimed on line 13000 of your income tax return and the new T4 slip will break your employment income into periods that align with CERB payment periods.

The new format will inform the CRA of the CERB amount you received while you were still working.

This T4A must be reported on your income tax return as income and, since no taxes were deducted from the CERB payments, you need to be prepared to pay the taxes on it.

As mentioned above, the amount owed will depend on your 2020 marginal tax rate, which takes into account all other income earned in 2020.

Again, if you are unsure how to proceed with filing your taxes and CERB payments, get in touch with Liu & Associates for more information.

Take Action Now

The more you do now to determine what kind of taxes you will owe on your CERB payments, the less stressful next year’s tax season will be.

Take some time to determine how much, approximately, you will make this year and crunch the numbers to get your tax rate.

Again, if ever you find yourself struggling with this, our team at Liu & Associates is ready to help you sort out your taxes and manage your finances. Get in touch with us today!

Contact Us

COVID-19 Canadian Tax Information

With the recent changes due to COVID-19, many clients and small businesses are feeling financial pressure.  Please know we are deemed an essential service and will continue to serve you.  If you are affected financially by this pandemic, Liu & Associates is here to help.

To help ease financial burdens of taxpayers and small businesses, the Government of Canada is providing options to defer tax payments and is extending the tax deadline.  Read more about financial help for Canadians affected by COVID-19; a hub of benefits the federal government, provinces and territories are offering to people financially affected by the coronavirus.  For more information on how this can help you, your business and your employees, please see our resource section below or call us at 780-429-1047.

You can also visit Government of Canada’s coronavirus disease or call their information line (1-833-784-4397),  available from 7:00 a.m. to midnight (EST) seven days a week.

Our team will continue to update this page as more information becomes available.

Last updated: December 15, 2020.

Our Response Plan

The team at Liu and Associates LLP wants to assure you we are closely monitoring the COVID-19 situation from a financial standpoint and recognize it is truly a global crisis and is constantly changing. This is an unprecedented time for all of us, and we feel the need for everyone to work together to weather this storm.

To ensure the health and safety of our clients and staff, we are taking extra precautions in our office – read our blog post about how our office protocol has changed.

External Resources

GOVERNMENT COVID ASSISTANCE

With the new restrictions, there have been some new announcements for COVID Assistance programs by both the Federal and Provincial government.

There are two surveys available to help identify what benefits you may be eligible for:

You also may find it beneficial to visit Canada.ca. Right under the banner you will find a link called Covid-19 Financial Assistance. Here you will find the support for individuals as well as businesses.

Lastly, the Government of Alberta has recently put out useful information regarding Albertas relaunch grant for small and medium sized businesses.

For more support services, please see the external links below.

City of Edmonton

  • The City of Edmonton has launched a new website for business support in response to the COVID-19 pandemic. This website will be updated regularly by the City.
  • If you have any business related questions, contact the City of Edmonton directly: businessinfo@edmonton.ca
  • In an effort to contain the spread of COVID-19, the City of Edmonton is taking immediate action following the direction of Alberta’s Chief Medical Officer of Health.

Surrounding Areas

For up-to-date information related to other surrounding communities, please follow the following links:

Alberta

Canada

The Government of Canada is rolling out constant updates that affect both individuals and businesses.

APPLICATIONS are now being accepted for Canada’s Emergency Response Benefit Program.

The Government of Canada has launched a COVID-19 APP; to download yours visit APPLE  OR  ANDROID

 

Prime Minister Justin Trudeau announced $350 million in emergency funds for community groups and national charities.
Individuals

 

Businesses

For more information, please contact Liu & Associates LLP.

From all of us at Liu & Associates LLP, please have a safe and healthy season.

New COVID-19 Protocols

Last updated September 20, 2021.

 

To all our clients, we hope that this finds you well and safe.

Like all of you, we have been affected in many ways by the pandemic as well so please know that we are here to stand with you and to give you support in what ways we can.

Due to the COVID-19 Pandemic, we will be exercising extra precautions for the safety of our clients and staff:

  • At the time  you make your appointment with us or at the time you drop into our office, please let us know if you, or someone you have been in close contact with, have travelled out of the country in the last 14 days or if you are experiencing flu like symptoms
  •  

  • When arriving at our office you must be in compliance with Edmonton city bylaw 19408 which requires that you wear a face mask in all indoor public places.  If you do not have a mask, we will provide you with a non-surgical face mask
  •  

  • We will also request that you use the hand sanitizer which we will supply.  Please note that handwashing is recommended as a better alternative to the use of hand sanitizers. If you wish to wash your hands for the necessary 30 seconds it takes to kill the virus, please ask reception to provide you with the bathroom key.  Our washrooms are sanitized regularly and our reception area is sanitized after each client visit for your safety.

To assist our clients, we have compiled a list of resources for both businesses and individuals. 

We thank you for your assistance and cooperation in this matter.

Please contact us if you have any questions about our services during this time.

COVID-19 Tax Implications

The team at Liu and Associates LLP want to assure you we are closely monitoring the COVID-19 situation and recognize it is truly a global crisis and is constantly changing. This is an unprecedented time for all of us, and we feel the need for everyone to work together to weather this storm.

We want you to know you have our commitment to continue providing you with the services you depend on, including up to date economic information.

You are not alone; we are in this together. So, how are we working together to support each other?

Health & Safety

First and foremost, our plan ensures the health and safety of our employees and our clients. We have implemented special protocols and continue to update them to support our team and to ensure we maintain our ability to serve you, for the long term.

We are being very cautious and have put in place precautionary measures to limit the potential spread of the virus including:

  • Frequent hand washing, supplying hand sanitizer, and masks if needed.
  • By requesting any staff member who has been out of the province to self-isolate for 14 days.
  • Maintaining social distancing within our office.
  • Working remotely wherever possible and using specific software as a unified communication and collaboration platform combining workplace chat, video meetings, file storage, and application integration.
  • Taking steps to limit our outside contact and discouraging in-person meetings as much as possible by asking our clients to provide us with their tax or financial information electronically, and if that isn’t possible, to please make an appointment in advance for an in-person meeting.
  • Materials physically coming into our office are being quarantined, and our intake staff are using precautionary measures.

Monitoring

Our senior leadership team remains vigilant and is monitoring the situation in real time and responding swiftly as conditions evolve.

Please view our most recent update on our COVID-19 protocols.

Tax Changes

We undertake to keep you up to date on changing tax deadlines or government directives, as follows:

You may already be aware of Canada Revenue Agency’s (CRA) announcement to extend the personal tax filing deadline. So instead of an April 30th filing deadline for the 2020 tax filing season, Canadians will have until June 1st to submit their income tax return to CRA. The deadline to pay off any outstanding balances interest-free will also be extended, this time, to July 31st.

Businesses will also have more time to pay their taxes. The CRA will allow all businesses to defer, until after August 31st, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020 including tax balances due, as well as required instalments, under Part 1 of the Income Tax Act.

No interest or penalties will accumulate on these amounts during this period. For more information, please see the statement from the Department of Finance. 

The CRA continues to monitor the evolving situation closely, in collaboration with other government departments and agencies as well as our provincial and territorial partners.

The Government of Canada is taking immediate, significant and decisive action to help Canadians facing hardship as a result of the COVID-19 outbreak. Today, March 18, 2020, the Prime Minister announced a new set of economic measures to help stabilize the economy during this challenging period.

These measures, delivered as part of the Government of Canada’s COVID-19 Economic Response Plan, will provide up to $27 billion in direct support to Canadian workers and businesses. For detailed information please visit their website.

Moving Forward

We are following the guidance of major public health organizations, including the Public Health Agency of Canada, local health authorities, and the World Health Organization, and will continue to do so as the situation unfolds.

To protect ourselves and the communities around us, we can’t stress enough to please follow all the protocols for COVID-19 including frequently washing hands, regular cleaning of work surfaces, and avoiding public or crowded places whenever possible.

Best of health, be safe, and take care of yourselves.

Your trusted financial team at Liu and Associates LLP