Last updated Jan. 26, 2021. We will update blog posts when more information is released.
Did your business take advantage of federal COVID-19 programs in 2020? If so, questions are likely racing through your mind about the tax implications of receiving benefits from the various programs.
What do you need to report as income on your 2020 tax return?
Will you have to pay additional tax on the emergency benefit programs that withheld tax at the source?
What are your T4 reporting requirements if you took advantage of the Canada Emergency Wage Subsidy?
We’ve provided a summary to those common questions below.
And if you’re worried about your taxable income for 2020, don’t forget to claim business-related tax deductions, which includes remuneration paid to employees minus government support, or rent expenses. Click here for a list of top tax deductions for small business owners.
Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy (CEWS) is a taxable benefit available to employers who have experienced a drop in revenue due to COVID-19, to cover part of their employee wages retroactive to March 15, 2020.
You can use the money to prevent layoffs and make it easier to resume operations after the pandemic is over. Plus, salaries are usually the biggest cost on an income statement. With the subsidy, you’ll have some cash flow that you can use for operating costs like rent, utilities, insurance and property taxes.
How CEWS will impact your tax return
The Canada Emergency Wage Subsidy is taxable. You must include the amount of CEWS you receive as taxable income on your corporate income tax return.
How to report employment income during COVID-19 pay periods
For the 2020 tax year, the CRA introduced new information codes for employers reporting employment income and retroactive payments of their employees in the following COVID-19 pay periods:
Code 57: Employment income – March 15 to May 9
Code 58: Employment income – May 10 to July 4
Code 59: Employment income – July 5 to August 29
Code 60: Employment income – August 30 to September 26
Note that each period relates to the day you paid your employee(s), and not necessarily the period of work the payment covered.