Calculating the Tax on the Canada Emergency Response Benefit (CERB)
The Canada Emergency Response Benefit (CERB) gives financial support to employed and self-employed Canadians who are directly affected by COVID-19.
If you are eligible, you may receive $2,000 for a 4-week period. At present time, the government is not withholding tax at source on those payments, in other words, recipients are receiving the full CERB payment without tax deduction. Applicants will receive $500 a week, in four-week intervals, up to a maximum of 24 weeks. Accordingly, an applicant can receive up to $12,000 in CERB payments. Caution however! The benefit is taxable, which means you may have to repay a percentage of these funds to the CRA when filing your 2020 taxes in April of 2021.
The question: How do I calculate the amount of tax on CERB?
The CERB payments are taxable as ordinary income, just like (self-)employment income or interest income from a GIC. The amount of tax you will owe, therefore, depends on your total income for 2020 and your marginal tax rate for the year.
Your marginal tax rate is the amount of tax you would pay on an additional dollar of income. It’s based on the rates of tax applied to a given level of income, both federally and provincially. Individuals pay taxes at graduated rates, meaning that your rate of tax gets progressively higher as your taxable income increases.
When it comes time to file your 2020 taxes, you will receive a T4A tax slip from the Government of Canada, stating the amount of CERB you received. If you use the CRA My Account portal, you will find this document under “Tax Information Slips (T4 and more).” Otherwise, you will likely receive this information in the mail. When the time comes, you will calculate the exact totals. In the meantime, you can use an estimate.
Put simply, to estimate the total amount you will earn during the year, add up the following sources of income:
- CERB payments
- Employment income
- Self-employment income
- Any other sources of income
Next, subtract any tax deductions like RRSP contributions. This figure will help determine which tax bracket your income will fall into, both provincially and federally. Please see the tables below for a breakdown of federal and provincial tax brackets for the 2020 tax year.
Federal Tax Rates for 2020
|Tax Rate||The portion of Taxable Income||Income amount|
|15%||$48,535||On the first $48,535|
|20.5%||$48,534||Portion over $48,535 up to $97,069|
|26%||$53,404||Portion over $97,069 up to $150,473|
|29%||$63,895||Portion over $150,473 up to $214,368|
|33%||No limit to this amount||Over $214, 368|
Provincial and Territorial Tax Rates 2020
|Tax Rate||Taxable Income Amount|
|Alberta||10% on the first $131,220, +|
12% on the next $26,244, +
13% on the next $52,488, +
14% on the next $104,976, +
15% on the amount over $314,928
|British Columbia||5.06% on the first $41,725, +|
7.7% on the next $41,726, +
10.5% on the next $12,361, +
12.29% on the next $20,532, +
14.7% on the next $41,404, +
16.8% on the amount over $157,748
|Manitoba||10.8% on the first $33,389, +|
12.75% on the next $38,775, +
17.4% on the amount over $72,164
|New Brunswick||9.68% on the first $43,401, +|
14.82% on the next $43,402, +
16.52% on the next $54,319, +
17.84% on the next $19,654, +
20.3% on the amount over $160,776
|Newfoundland and Labrador||8.7% on the first $37,929, +|
14.5% on the next $37,929, +
15.8% on the next $59,574, +
17.3% on the next $54,172, +
18.3% on the amount over $189,604
|Northwest Territories||5.9% on the first $43,957, +|
8.6% on the next $43,959, +
12.2% on the next $55,016, +
14.05% on the amount over $142,932
|Nova Scotia||8.79% on the first $29,590, +|
14.95% on the next $29,590, +
16.67% on the next $33,820, +
17.5% on the next $57,000, +
21% on the amount over $150,000
|Nunavut||4% on the first $46,277, +|
7% on the next $46,278, +
9% on the next $57,918, +
11.5% on the amount over $150,473
|Ontario||5.05% on the first $44,740, +|
9.15% on the next $44,742, +
11.16% on the next $60,518, +
12.16% on the next $70,000, +
13.16 % on the amount over $220,000
|Prince Edward Island||9.8% on the first $31,984, +|
13.8% on the next $31,985, +
16.7% on the amount over $63,969
|Quebec||15% on the first $44,545,|
20% on amounts greater than $44,545, but not more than $89,080,
24% on amounts greater than $89,080 but not more than $108,390
25.75% on amounts greater than $108,390
|Saskatchewan||10.5% on the first $45,225, +|
12.5% on the next $83,989, +
14.5% on the amount over $129,214
|Yukon||6.4% on the first $48,535, +|
9% on the next $48,534, +
10.9% on the next $54,404, +
12.8% on the next $349,527, +
15% on the amount over $500,000
Taking a single example, if you were to make $40,000 during the year and you received the maximum CERB amount of $12,000, your total taxable income would be $52,000. Your tax liability would depend on which province or territory you live in and the federal tax rate. The federal tax rate on this amount is 15% for 2020. If you live in Ontario:
- The first $44,740 is taxed at a rate of 5.05%;
- The remaining $7,260 is taxed at a rate of 9.15%
Use the tax brackets to determine your marginal tax rate and effectively how much you may owe in taxes come tax season April 2021.
Example: Tom, Dick and Harriet
To illustrate further, let’s take a look at three taxpayers who have experienced job losses as a result of COVID-19 and each of whom is eligible for the full $8,000 in CERB payments.
- Tom, a B.C. resident, worked part-time during the first part of 2020 and was furloughed on March 15. His income for the first ten weeks of 2020 was $2,000 and he will collect $8,000 in CERB. If that was his only 2020 income, he would owe no tax on the CERB payments since his total estimated income of $10,000 is below the basic personal amount federally and in B.C. If he earns more income later this year, he would need to recalculate his tax owing for 2020.
- Dick, an Ontario resident, earned $12,000 until March 31, 2020 when he was laid off. He is expected to collect $8,000 in CERB for 2020, bringing his 2020 estimated income to $20,000. If he lived in Ontario, he should set aside 20% or $1,600 of his $8,000 CERB to cover his tax liability for 2020. Again, if he gets re-hired later this year, he may owe a bit more tax on the CERB come next spring.
- Finally, Harriet is a self-employed professional in Nova Scotia who earned $50,000 in the first 10 weeks of 2020 until she shut down her practice as a result of COVID-19. She’s optimistic that she will be able reopen her practice this summer and estimates her 2020 income will exceed $250,000. She will need to set aside $4,320 (i.e. 54%) of her $8,000 CERB payments to cover the tax owing next spring.
More information on CERB
1.About the CERB
If you have stopped working because of the COVID-19 pandemic, are in quarantine, or are taking care of others because of the crisis, you may be eligible for financial support from the government. If you qualify, the CERB provides a temporary income of $500 a week ($2,000 a month) for up to 16 weeks.
Who is Eligible for the CERB Payments? To be eligible for the CERB payments, you must:
- Reside in Canada;
- Be at least 15 years old;
- Have stopped working because of reasons related to COVID-19, or are eligible for Employment Insurance (EI) or sickness benefits, or exhausted EI benefits between December 29, 2019, and October 3, 2020;
- Have had employment income of at least $5,000 in 2019 or the last 12 months before the date of application;
- Have not voluntarily quit your job.
Eligibility for the CERB started on March 15, 2020 and extends until October 3, 2020. However, the application deadline is December 2, 2020. That means you can receive retroactive payments.
Note that you do not have to be formally laid off to collect the CERB as you can receive the benefit even if you remain attached to your company, provided you meet all the eligibility requirements. This allows employees to continue to receive non-cash benefits, such as medical and dental coverage, without impacting their eligibility. You can still qualify for the CERB if you volunteer to be temporarily laid off by your employer to help them manage the pressures on their business.
You may also be entitled to the CERB if you stopped working for other reasons, including if you’re in quarantine or sick due to COVID-19, you’re taking care of others because they’re sick, or you’re taking care of children (or other dependents) because their care facility is closed.
If you’re self-employed, operating as a sole proprietor or your business is incorporated, you can also qualify provided you meet the eligibility criteria.
2.Income Requirements to be eligible for CERB
To qualify for the CERB, you must have had (self-)employment income of at least $5,000 in 2019 or in the 12 months prior to the date of application. The CRA has stated that while filing an income tax return for 2019 is not an eligibility requirement to get the CERB, you will need to confirm, when applying online, that you satisfied the $5,000 income requirement.
The $5,000 includes all (self-)employment income, including tips and honoraria. Pensions, student loans and bursaries are not considered employment income and are excluded. The $5,000 of income need not be earned in Canada, but, as stated above, you need to reside in Canada to collect the CERB.
3.Income limitation while collecting CERB
When you submit your first claim, you cannot have earned more than $1,000 in (self-) employment income for 14 or more consecutive days within the four-week benefit period of your claim. For subsequent claims, including the third claim period starting on Monday, you can’t have earned more than $1,000 in (self-) employment income for the entire four-week benefit period of your new claim.
The CRA has stated that applications will be verified against tax records to confirm income.
4.How to apply for the CERB
To apply for the CERB, visit either the Service Canada or CRA website or call their associated phone line.
- CRA Online: Online applications can be made through your CRA My Account.
- CRA Automated Toll-free Line: The phone lines are open 21 hours a day, every day of the week. Services are closed between 3:00 a.m. to 6:00 a.m. for maintenance.
- Service Canada Online: Online applications can be made through the Canada.ca website.
- CRA Automated Toll-free Line: The phone lines are open Monday to Friday from 8:30 a.m. to 4.30 p.m.
You will need your Social Insurance Number (SIN) and your postal code to apply. You must also confirm you meet the eligibility requirements by completing a quick survey or declaring you qualify for the benefit over the phone.
5.Paying back the CERB
If you no longer meet the eligibility requirements for the CERB, you shouldn’t apply. The government is also encouraging Canadians who think that they may be returning to work in the weeks ahead such that they no longer will be eligible to consider waiting a little longer before applying for the upcoming period, so that you can make a “more informed decision.”
You are required to repay the CERB if you no longer meet the eligibility requirements for the 4-week period in question. This could happen either because you earned more than $1,000 in (self-) employment income, you applied for the CERB but later realized you weren’t eligible, or you received a CERB payment from both Service Canada and the CRA for the same period.
To return an uncashed CERB cheque, simply mail it back to the Sudbury Tax Centre, to the attention of “Revenue Processing – Repayment of CERB”, along with your Social Insurance Number and the reason you’re returning the cheque (“not entitled” or “overpayment.”)
If your CERB was paid by direct deposit or you’ve already cashed the government’s cheque, you can mail your own cheque repaying the CERB to the address above or, starting May 11, use a new feature on the CRA My Account website to repay it.
Finally, keep in mind that the CERB is taxable but no tax is withheld at source, so recipients need to estimate the tax liability they may owe taking into account all income for 2020. Recipients will receive a T4A tax slip for the amount of CERB received.
If you repay a CERB payment, that amount will not be included on the T4A slip. To ensure that your 2020 tax slip is correctly issued, the CRA is asking anyone who is required to repay their CERB to do so by Dec. 31, 2020. If you need more time to repay, recipients are encouraged to contact the CRA by Dec. 31, 2020 to ensure that they have an agreed upon payback schedule.
For more information on the various government assistance programs during COVID-19, click here.
Baber Rahim, Tax Law Clerk & JD Candidate
© Kalfa Law, 2020
The above provides information of a general nature only. This does not constitute legal advice. All transactions or circumstances vary, and specified legal advice is required to meet your particular needs. If you have a legal question you should consult with a lawyer.