CERB helped but prepare for taxes owing!
The hospitality industry is probably the most impacted by COVID-19.
In Canada, the federal government introduced the Canadian Emergency Response Benefit ‘CERB’ to assist those who temporarily lost employment due to business closures. This was $500 a week for up to 28 weeks. Some may not realize that no taxes are taken off at the time and this is fully taxable income.
Putting money aside – Ideally, hospitality workers should have been taking a portion (depending on your anticipated annual income) of each payment and put it aside for when you file taxes.
Tax Free Saving Account – If you have TFSA contribution room, this is the ideal parking place for your money where you can choose from a variety of investment options. In this case, you should park it in a high interest savings account as you will likely need the funds in 6 months to pay taxes owing. Have your money make you money while you prepare your taxes.
Registered Retirement Savings Plan – You may also have the option of transferring these funds into a RRSP (depending on your contribution room and income for 2020) by the end of February 2021.
Charitable donation – And finally, consider making a donation to a charity in order to get a tax receipt. If you have any appreciated securities, you can donate them in-kind. FOR YOUR INSTANT TAX RECEIPT – DONATE HERE
The reality for most is that they needed this CERB money to survive and pay expenses. If that is the case, then once you return to work, you should establish a strategy to start to put funds aside for taxes.
Every person’s financial situation is unique and you should speak with a qualified Certified Financial Planner (CFP) to determine and personalized strategy.
Len Colman, CFP, CLU
Senior Investment Advisor
Manulife Securities Incorporated
The opinions expressed are those of the author and may not necessarily reflect those of Manulife Securities Incorporated.