tax papers

What you need to know about the 2021 tax season

Tax season is around the corner, which means it’s a great time to brush up on your financial literacy skills and learn more about the Canadian taxation system.

Due to the events of 2020, many Canadians who applied for government subsidies may find themselves facing a higher tax bill than last year. Any payments received in 2020 from the Canada Emergency Response Benefit (CERB), Canada Emergency Student Benefit (CESB), Canada Recovery Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), or Canada Recovery Caregiving Benefit (CRCB) are considered taxable income, and must be reported as such on your return.

This means that tax was not deducted by the government before paying you, so you’ll have to pay the income tax bill on these benefits. While this may sound daunting due to the current economic situation we’re still in, the benefits of filing your taxes outweigh any bill that you may face.

By filing your taxes on time, you can automatically receive government benefits you qualify for, thus increasing your income, and reducing your tax bill.

Here are the top 5 government benefits you can access from filing your taxes on time:

GST (Goods and Services Tax) / HST (Harmonized Sales Tax) credit. The GST/HST tax credits are offered to people over the age of 18 with low to modest incomes to offset sales tax expenses. The total amount is calculated based on your family’s income, the number of children living with you, the age of your children and your marital status. It is issued every three months, making it a potential steady stream of income for many families.

Canada Child Benefit. The Canada Child Benefit is a tax-free monthly payment made to eligible families to help with the cost of raising children under 18 years of age. This benefit may also include the child disability benefit and any related provincial and territorial programs. The total amount is calculated based on your family’s income, the number of children that live with you, the age of the children, and your marital status.

Canada Workers Benefit (formerly Working Income Tax Benefit). The Canada Workers Benefit is a refundable tax credit that is intended to supplement the earnings of low-income workers and improves work incentives for low-income Canadians. It is issued every three months to those over the age of 19 who are employed. The amount you will receive is calculated based on your family’s income from work, the number of children that live with you, the age of the children, your marital status, and the province or territory you live in.

Old Age Security Pension. The Old Age Security Pension is the Government of Canada’s largest pension program. It is funded out of the general tax revenues of the Government of Canada. This means that you do not pay into it directly. This pension is a monthly payment available to seniors aged 65 and older. The amount you get is based on how long you have lived in Canada after the age of 18, and your income. You may need to apply in order to receive this benefit.

Guaranteed Income Supplement. The Guaranteed Income Supplement provides a monthly non-taxable benefit to low-income individuals over age 65 who are already receiving Old Age Security. You must be living in Canada to receive this. The benefit is paid out monthly and the amount is calculated based on your income and marital status.

In addition to these five benefits, there are two new benefits introduced this year that you may be eligible for:

Simplified Home-Office Expenses Deduction: You can now deduct $2 for every day you worked at home due to the pandemic, up to a maximum of $400, from your taxable income. To qualify, you had to perform more than 50% of your usual work hours from home over a period of at least four consecutive weeks during 2020.

Canada Training Credit: If you paid for tuition or training in 2020, you may be able to claim this tax credit. At the end of 2019, eligible workers aged 25 to 65 began automatically accumulating an annual sum of $250, up to a lifetime maximum of $5,000, in a Canada Training Credit account. Starting this year, you can claim the full balance in your Canada Training Credit account, or up to half your eligible tuition/training fees, whichever is less.

The government has not extended its tax filing deadline this year like it did last year, so it’s important to get your taxes done by the April 30th deadline in order to take advantage of government benefits.

If you do find yourself with a tax bill, the government has announced that it is waiving interest payments on any income tax owed until April 30, 2022. This means you won’t be penalized if you’re unable to pay your bill in full. However, it’s a good idea to put some money aside each month to start saving for this bill, should you owe.

For more financial literacy advice like this, visit Matters is a free financial literacy program for adults across Canada. Want to host a free Money Matters workshop? Find out how.