If you’re one of the millions of Canadians who received federal assistance related to the COVID-19 pandemic, the government isn’t quite done with you. Those COVID-19 benefits could impact your 2022 income taxes.
Eligible recipients will be required to add COVID benefit amounts to their taxable income, which could lead to higher tax bills or smaller refunds. Ineligible recipients, who have already been urged by the government to repay their COVID benefits, could face tax consequences, too — although they aren’t all bad.
Let’s examine the situation facing both groups as tax season approaches.
If you were an eligible recipient of COVID-19 benefits in 2022
If you received COVID-19 benefits last year, they need to be factored into your taxable income when completing your 2022 tax return. These benefits could include:
- The Canada Recovery Sickness Benefit.
- The Canada Recovery Benefit.
- The Canada Recovery Caregiving Benefit.
- The Canada Worker Lockdown Benefit.
In the coming weeks, recipients of federal COVID assistance should receive a T4A slip that lists all the benefits they received, as well as the applicable totals. Adding these amounts to your taxable income should be fairly easy. All COVID benefit payments need to be entered on line 13000 of your tax return.
Increasing your taxable income for 2022 isn’t the only way COVID benefits could impact your tax return.
COVID benefits were generally subject to a 10% withholding tax at the source — about half the rate applied to Canada’s lowest tax bracket, says Jason Heath, managing director at Objective Financial Partners Inc. in Markham, Ontario. You may be required to make up the difference come tax time, when your benefits will be subject to your actual income tax rate.
“If you have a high income, your tax rate could be 50% or higher,” Heath says. “So, anyone who received COVID benefits in 2022 should plan ahead for the potential of tax owing in April.”
One way to counter those higher tax bills is by making some last-minute RRSP contributions, Heath says. Any RRSP contributions made before March 1, 2023 should be able to be claimed as deductions on your 2022 tax return.
If you received COVID-19 benefits you weren’t eligible for
A recent report by the Auditor General found that Canadians received a whopping $4.6 billion in erroneous COVID-19 benefit payments, including overpayments and payments to ineligible recipients. About half that amount still needs to be paid back.
If you received COVID benefits you weren’t entitled to, including Canada Emergency Response Benefit and Canada Emergency Student Benefit payments, you’ve likely already received a notice from the federal government requesting repayment. Don’t ignore it.
There could be serious consequences if you refuse or fail to make your COVID benefit repayments, including garnished wages, liens and even asset seizures. The Canada Revenue Agency can also withhold tax refunds or GST/HST credits from individuals with outstanding COVID repayment balances.
But that’s a situation the CRA is taking steps to avoid.
“If an individual is unwilling to pay and has a clear ability to pay, we give several legal warnings before proceeding with any possible enforcement measures,” says Sylvie Branch, a CRA media relations advisor. “The goal remains to give taxpayers every opportunity to either self-resolve or contact us, at the phone number provided in the correspondence received, to make a payment arrangement.”
How to repay COVID benefit overpayments
You can make a repayment to the CRA at any time, either online, in person or by mail. If you can’t pay everything back in one shot, you can enter a payment arrangement with the CRA. Just calculate how much you can afford to pay on a regular basis and contact the Agency to work out the details.
Some good news regarding COVID benefit repayments
While having to pay back COVID benefits is a drag, especially if applying for what turned out to be an ineligible payment was an honest mistake, it’s not all bad news.
Any repayments you made in 2022 can be claimed as a deduction to ensure you don’t pay tax on those amounts. You can claim the deduction on your 2022 tax return, claim it for the year you received the benefit or split it between tax returns.
To claim a 2022 repayment as a deduction for the 2020 or 2021 tax years, you’ll fill out Form T1B, Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year, and file it along with your 2022 tax return. The form should be available from the CRA in January.
If you repay a COVID-19 benefit amount after December 31, 2022, you can still claim a tax deduction, but only for the tax year in which you made your payment.
There are several types of taxes self-employed business owners and freelancers must pay in Canada. Plan to set aside 25%-30% of your income to pay them.