Many millions of Canadians have started to receive the Benefit of canadian emergency (PKU). If this is your case, have you thought about the impact it could have on your tax bill next year ?
The PCU is a monthly amount of $ 2000 paid up to a maximum of four months by the federal government. It aims to help people who have lost their jobs because of the COVID-19. To be eligible, you must have declared $ 5,000, the minimum revenue in the last year or during the last twelve months, and not have worked for 14 consecutive days for each period of one month. A good tax accountant will cost more but your tax return will receive more of their focus and attention. Using a cheap tax return service now only to receive a large fine later on will not save you money. Once you have decided on the type of tax accountant that you need, you still have to find him or her. If you know a friend who has used an accountant in the past ask for recommendations. The chances are, if they did a good job for your friend they will do a good job for you too. However if you do not know anyone who has used a tax accountant in the past, you can still find one online on sites such as LinkedIn, directories or a website that is there specifically to match up businesses with qualified accountants. You can get find more detail about accountants & bookkeepers in St Kilda.
Recently, the government has broadened the criteria so that the self-employed workers can be eligible for when their income fell below $ 1,000 per month due to the loss of contracts caused by the pandemic.
If the PCU gives a breath of fresh air to many Canadians, it must be remembered that it is taxable. This means that when you prepare your tax return for 2020, you’ll need to add in the box of income. Since one perceives the gross amount and without deductions at the source, it’s a safe bet that your tax bill will be amended.
Until now, some have argued that it is a sum of 25% to 30% should be put aside to cover this additional tax. But, in fact, everything depends on the income that you would report to 2020, ” explains David Blondeau, financial planner at financial Management Blondeau.
“The amounts that you will be charged will differ, sometimes significantly. The impact is much greater for those who earn a low salary, ” he says
Small wages, and worst-case scenarios
David Blondeau has done some projections to help us see more clearly. Take the case of a single person who earns $ 50,000 gross per year.
“She will pay in taxes, excluding social security costs, $ 10,000 per year, the equivalent of about 830 per month,” says David Blondeau. If it is set to foot and it touches the PCU for a month, it will bill additional tax of $ 71. This increases to a total of 209 $ for two months, $ 400 for three months and to $ 647 for four months.
“However, if the worker found his job, and that the tax withholdings remain the same as before, that is to say, calculated on an annual salary of $ 50,000, this will not change anything for him, because the deductions made until December 2020 will allow to compensate for the additional taxes to pay for the PKU,” says David Blondeau.
In contrast, with a salary of $ 28,000 gross, the PCU will constitute an enrichment compared to the usual income. In this situation, the tax bill increases of $ 218 additional for one month, $ 437 for two months, of 655 $ for the three-month and 873 $ for four months.
And since withholding taxes are low for this portion of earnings, we will not be able to offset those amounts when we return to work.
“The worst-case scenario is for those who have a salary of $ 2000 net per month. If they receive 2000 $ gross PKU, they will have to pay more tax, because they are enriched, ” says David Blondeau.
- Ask a specialist (accountant, financial planner) to assess the amounts of extra tax that you may have to pay when your income tax return for the year 2020. It will present strategies for limiting the consequences.
- You could also ask your employer, when you resume work, to increase the withholding on your payroll until 31 December 2020, in order to incorporate these additional amounts. At the end of the tax year, you will eliminate the surplus.
- If you could defer your mortgage for six months and you touch the PCU, this will free up some cash. Try to keep a portion to pay your taxes next year.