Figuring out the taxation of pandemic benefits - Akler Browning LLP

The list of financial assistance programs that have been provided by the federal government to support individual Canadians through two years of the pandemic is lengthy, detailed, and sometimes confusing. Unfortunately for the Canadian taxpayer, however, every one of those programs has one thing in common — benefits received are taxable income which must be reported on the return for the year in which they were received, and on which tax must be paid.

While fewer Canadians claimed and received such benefits during 2021 (as compared to 2020) there are still millions of taxpayers who will need to report pandemic benefits received during the year. It is possible, as well, that an individual taxpayer would have received pandemic benefits under more than one program during 2021, as the Canada Recovery Program (which included multiple types of benefits) ended in the fall of 2021 and was replaced by the Canada Worker Lockdown Benefit. The possible benefit programs from which benefits might have been received during 2021 therefore include the Canada Emergency Response Benefit (CERB), the Canada Emergency Student Benefit (CESB), the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB), the Canada Recovery Caregiving Benefit (CRCB), and the Canada Worker Lockdown Benefit (CWLB). And, while tax was withheld from payments made under some (but not all) of these benefit programs, the amount withheld was a flat amount of 10% of the benefit, which was likely less than the amount of tax which will ultimately be payable on the benefit amount. The rules on how to determine the amount in taxable benefits received and how to report them on the return for 2021 are outlined below.

The good news is that those who received pandemic benefits of any kind during 2021 will not have to remember which benefit(s) they received or how much the payments were. Rather, such individuals will receive T4A slips from the Canada Revenue Agency (CRA), and those slips will summarize the amount in benefits received from each program.

Taxpayers who are registered to use the CRA’s online services will be able to access their T4A slips on the CRA website. Those who do not will have paper copies of the T4A slips mailed to them by the end of February 2022.

T4A slips issued will show, in separate boxes, the amount of benefit received during 2021 under each pandemic relief program. As a practical matter, however, the specific type of benefit doesn’t really matter when it comes to taxation of those benefits, since taxpayers must add up all of the benefit amounts listed on the T4A and report the total amount as a single figure on line 13000 of the 2021 income tax return.

It’s somewhat confusing that line 13000 on the return doesn’t actually refer to pandemic benefits; rather, it is a line on which “other income” is reported. While there is a space on Line 13000 of the return on which taxpayers can specify the type(s) of “other income” being reported, filing instructions provided on the CRA website state only that taxpayers should “[E]nter the total amount you received on line 13000 of your tax return. If you are filing a paper return, specify the type of income you are reporting. Attach a list if you received more than one benefit.”

Among all of the benefit programs provided, tax was withheld from all benefits under the CRB, the CRSB, the CRCB, and the CWLB. Taxpayers who received such benefits will find an amount listed in Box 22 on the T4A. That number, which represents the amount of tax which the benefit recipient has already paid on those benefits, should be entered on Line 43700 of the return.

Taxpayers who received the Canada Recovery Benefit during 2021 and who had net income for the year of more than $38,000 may find themselves in the unenviable position of having to repay some of the CRB amounts received. The repayment rate is 50 cents of benefits received for every dollar of net income over the $38,000 threshold, to a maximum amount of total CRB benefits received. Where a taxpayer is preparing his or her return using tax preparation software, that software should do any required repayment calculation automatically and include any repayment amount in the total of tax payable for the year. Taxpayers completing a paper return will need to calculate any required repayment amount using a Worksheet (in the section under Social Benefits Repayment), which can be found on the CRA website at https://www.canada.ca/en/revenue-agency/services/forms-publications/tax-packages-years/general-income-tax-benefit-package/5000-d1.html.

While the number of different benefit programs under which benefits might have been received during 2021 is numerous, and the rules governing eligibility were certainly complex, reporting those benefits for tax purposes is really just a two-step process for taxpayers. First, add up all benefit amounts which appear in Boxes 197 to 199, Box 200, Box 211, and Boxes 202 to 204 on the T4A slip which was received. Take the total amount of such benefits and enter it on Line 13000 of the return. Next, if there is an amount appearing in Box 22 of the T4A, that number should be entered on Line 43700 of the return.

Detailed information on the taxation of pandemic benefits and how to report that income on the return can be found on the CRA website at https://www.canada.ca/en/services/taxes/income-tax/personal-income-tax/covid19-taxes/t4a-report/report-amounts.html#h-1.