Although it’s only November…now is a good time to look ahead and plan for what your income taxes may look like in 2020.
Many Canadians experienced work disruptions and income fluctuations in 2020 because of the Covid-19 pandemic, some who have typically received refunds in the past may be shocked to find that they actually owe taxes this year.
On the surface it may not seem like a big tax issue if your income was reduced this year – you may expect that with a decline in income would come a decline in income taxes. However, several factors may be at play when it comes to calculating your income taxes this year – especially if you received government benefits such as the Canada Emergency Response Benefit (CERB), Canada Relief Benefit (CRB), Canada Recovery Sickness Benefit (CRSB), Canada Recovery Caregiving Benefit (CRCB), or Canada Emergency Student Benefit (CESB). For those who received the CERB (Canadian Emergency Response Benefit) NO TAXES were withheld at the source – meaning at tax time you will owe taxes on the income you received from CERB. You can estimate what your marginal tax rates will be in Manitoba by visiting (https://www.taxtips.ca/taxrates/mb.htm).
Additionally, if you normally contribute to a Group RRSP through your employer (through payroll deductions) you may have less contributions and therefore less income tax deductions this year. With childcare facilities closed, your corresponding tax deduction for childcare will be less this year than in previous years. If you typically travel for work and claim travel-related expenses this will also be less this year. On the other hand, home office expenses (if you have had to purchase equipment to work from home) may be a new expense you previously have not claimed on your income taxes. Medical Services such as dental or other health-care expenses may also be less and therefore the corresponding tax credits will be lower.
Finally, if you discover that you collected any relief payments in 2020 but shouldn’t have, you may want to pay back those benefits prior to December 31st, 2020 – not doing so means not only will you have to re-pay those benefits but you may be charged interest as well.
If you thought income taxes were complicated prior to this year…2020 has certainly made things even more challenging. I recommend speaking to a tax professional prior to filing your income taxes this year to prepare in advance and avoid a surprise tax hit this spring. If you believe you may owe money (instead of getting that nice refund this year) it is important to budget this into your finances to avoid penalties or interest…developing a payment plan or savings strategy ahead of time may prevent frustration, grief (or shock) down the road.
Brooklyn Scott is a Financial Advisor/Mutual Funds Representative for Lewis & Jones Group/Desjardins Financial Group/Desjardins Financial Security Investments Inc. in Killarney, Manitoba.
Mutual funds are distributed through Desjardins Financial Security Investments Inc. For insurance products, Desjardins Financial Security Investments Inc. acts as a national insurance brokerage agency.