To intervene and ease living for the tons of Canadians who lost their jobs during the COVID-19 pandemic, the Canadian government designed the Canada Emergency Response Benefit (CERB). As with every benefit in Canada, it’s not unexpected to wonder if CERB is tax-free.
Many Canadians were surprised to receive this fund. In addition, most people who got this benefit are still confused about whether or not the funds they received are Employment Insurance (EI). There have been a lot of speculations about whether or not the CERB is exempt.
Canada Emergency Response Benefit (CERB)
The CERB is a government-initiated program that offers financial aid to people whose COVID-19 pandemic affected their employment. Eligible persons received CA$2,000 for four weeks, CA$500 weekly between March 15 and September 26, 2020. This brings us to the question on everybody’s mind – is the CERB fund tax-free?
Is CERB Tax-Free?
No, CERB is not tax-free; it is taxable. In addition, the tax rate is at the same rate at which the CRA calculates employment and interest income. After receiving the fund, you will get a T4A tax slip on the amount you got. Once you get a T4A slip, you will see your CERB amount in box 197.
However, if you receive CERB from Service Canada, you will use the T4E slip to file your tax. On the other hand, residents of Quebec will receive both a T4E and a T4E(Q) slip.
In addition, when paying the CERB tax, you will have to pay on both provincial and federal levels. Also, You can pay CERB tax when filing for your regular taxes.
You can calculate your CERB tax by using federal and provincial tax rates, then multiply the percentage rate by the CERB amount you received. Alternatively, you could use an online tax calculator.
Filing CERB Tax
If you received CERB payment from Service Canada, below is are steps on how to file your tax:
- Retrieve your total CERB amount in box 14 of your T4E slip
- For persons that are not eligible for a tax-exempt benefit, use the amount in box 14 and subtract any amount shown in box 18 from it. Box 18 carries other information on your T4E slip.
- Proceed to enter the result of the subtracted amount on line 11900 on your return.
CERB Tax Exemptions
For people with income that are eligible for tax exemptions, their CERB payment may be tax-free. Tax exemption is applicable for persons whose income falls under section 87 of the Indian Act. Below are some of the situations that may warrant a tax-free and a taxable CERB
- Your CERB amount is tax-free if you previously had tax-exempt income when earning CA$5,000 income requirement.
- However, if your income in 2019 or the last 12 months was not fully tax-exempt, you may have to pay tax on any amount of CERB you receive.
Aside from people are tax-exempted, some people will have to repay their CERB amount. Below are some of the situations where the CRA require that you repay CERB funds:
- People who received multiple CERB payments
- Ineligible people who received payment
- People who receive funds they did not apply for
- If you earn more income during the period, you got the CERB funds
The CERB funds catered to a lot of Canadian’s financial needs during the COVID-19 pandemic. But as established above, people who received this fund must pay tax on the money.
However, if you fall under the category of tax-exempted persons, you don’t have to worry. In addition, bear in mind that there are penalties for evading tax in Canada, so it is advisable to go through your slip carefully to know when your payment is due.