Canadians who received the Canada Emergency Benefit (CEP) in the year 2020 may have to pay thousands of dollars in taxes.
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A bad surprise that will perhaps make a hole in the budget of some who will not have saved for their taxes.
Remember that the PKU is a taxable benefit, even if the government of Justin Trudeau has not deducted any amount at source.
The Canada Revenue Agency (CRA) has also started sending T4A slips.
The amounts payable vary depending on the person’s annual income.
The annual income (excluding the PCU) gives the marginal tax rate that will be used to calculate the amount payable.
The total amount of PCU received is then multiplied by the marginal tax rate, which gives the amount of additional tax that will be paid.
For example :
A person who received $ 12,000 in PKU could have to pay $ 3,304 in additional taxes if they have an annual income of $ 25,000, excluding the PKU, since the marginal tax rate is 27.53% for this level. of income.
On the other hand, the amount of additional taxes payable increases to $ 3,904 if the claimant who received $ 12,000 from ECPs has an annual income of $ 45,000, excluding ECPs, since the marginal tax rate is 32, 53% for this level.
For an annual income excluding the PKU of $ 70,000, a person who received $ 12,000 of the PKU would have to pay $ 4,454 in additional taxes since the marginal tax rate for this level is 37.12%.
The amount of $ 12,000 is equivalent to approximately 6 months of benefits.
The best option to reduce the amount of taxes payable is to contribute to an RRSP, according to Jean-Sébastien Jutras, director of financial planning at Groupe IA.
“The fact of contributing to our RRSPs decreases our income and gives us tax savings related to all that”, he explains in an interview with the program “À votre affaires”.
These contributions could save a few hundred dollars.
“For example, someone who makes an income of $ 40,000 including their salary and PKU in 2020 has the first 60 days of the year to contribute to their RRSP. So if he contributes $ 1,000, for example, he’ll save $ 275 in taxes, so that’s not to be overlooked, ”says Mr. Jutras.
Those who do not have the necessary liquidity to contribute to their RRSP can “always contract an RRSP loan with their financial institution to be able to benefit from that too”, he suggests.