Nicole Ewing LLB, TEP, CLU - Senior Strategist, Advice & Guidance
The Government of Canada has introduced economic measures to help provide financial stability and relief for individuals and businesses affected by COVID-19. We believe the following are important to highlight for individuals and their families. The information contained in this document is not considered tax or legal advice. Clients should continue to consult professionals for tax and legal advice.
Canada Emergency Response Benefit (CERB)
The new Canada Emergency Response Benefit (CERB) will provide a monthly taxable benefit of $2,000 for up to four months to certain workers impacted by COVID-19.
The Government of Canada confirms individuals will qualify for the benefit if they meet all of the following conditions:
- Live in Canada and are at least 15 years old.
- Stopped working because of COVID-19 or are eligible for EI regular or sickness benefits.
- Have not voluntarily quit their job.
- Had income of at least $5,000 in 2019 or in the 12 months prior to the date of their application.
On April 15, the government announced changes to expand the eligibility rules to:
- Allow workers to earn up to $1,000 per month while collecting the CERB.
- Include seasonal workers who have exhausted their EI regular benefits and are unable to undertake their regular seasonal work because of COVID-19.
- Include those who have recently exhausted their EI regular benefits and are unable to find a job because of COVID-19.
Top-Up for Essential Workers
- The federal government and provinces will cost-share a temporary top up to the salaries of low-income workers deemed essential in the fight against COVID-19.
- Essential workers who earn less than $2,500 per month will have their incomes topped-up.
What this means for you:
We recommend you consider prioritizing income as follows:
Toward immediate expenses: If you are struggling with current expenses, prioritize funds toward necessary expenses that you cannot obtain assistance with from public or private programs.
There may be additional options to reduce current expenses, such as:
- Deferring mortgage payments. Canada's largest banks are offering mortgage payment relief to customers in the form of deferred mortgage payments. This means that customers who have been impacted by COVID-19 and are in good standing with their loan provider, may apply for mortgage relief directly with their financial institution. While payments may be deferred, it is important to be aware that interest will generally continue to accrue and will be added to the balance of your mortgage.
- Defer student loan payments. The Government of Canada has announced it will pause the repayment of Canada Student Loans and Canada Apprentice Loans until September 30, 2020, with no accrual of interest. All student loan borrowers will automatically have their repayments suspended until September 30, 2020.
- Delay tax payments until September 1, 2020 (see "Tax Filing" section below).
Toward emergency fund & cash reserves for ongoing expenses:
- Emergency fund: We generally recommend having/keeping 3-6 months' worth of expenses in cash as an emergency fund. You may want to err toward the longer side given uncertainty surrounding this environment. You might consider using the income to bolster your emergency fund for additional security later.
- If you're uncertain about how financially secure you may be in the coming months, keeping it in reserve (even if you have sufficient emergency savings/cash) may also be appropriate. Consult with your Edward Jones financial advisor.
Toward other goals (including debt reduction):
- If you have adequate emergency savings/cash and are financially stable, investing the money for retirement, education, or other financial goals may be beneficial as the recent market downturn could provide an opportunity for investment.
- Debt reduction could also be considered, starting with high-interest, non-deductible debt.
It is important to be aware that the CERB is taxable, yet tax will not be deducted at source. You will be required to report this income when you file your income tax return for the 2020 tax year, and you may have a tax liability associated with the CERB you receive. We recommend you anticipate owing taxes at your marginal rate on these mounts and set aside funds accordingly.
Increase to the Canada Child Benefit (CCB)
The federal government is providing up to an additional $300 per child through the Canada Child Benefit (CCB) for 2019-2020, and estimates this will mean an additional $550 more for the average family.
We recommend you consider prioritizing the use of these funds in a similar manner as the CERB income.
What this means for you:
- Existing recipients of the CCB do not need to reapply. The benefit will be delivered as part of May's scheduled CCB payment.
- New applications may be made on the Government of Canada website.
- Note that these benefits are payable based on 2018 tax returns. While the deadline for individual tax filers has been extended to June 1, 2020, we recommend clients not wait to file their returns to ensure benefits and credits are not interrupted.
Reduction in RRIF Minimum Withdrawal
Minimum withdrawals must be made from an individual's Registered Retirement Income Fund (RRIF) beginning in the year after the RRIF is established. These minimum withdrawals are based on the individual's age and are calculated as a percentage of the fair market value of the RRIF assets at the beginning of the year. For 2020 the government is allowing a reduction of the required minimum withdrawals from RRIFs by 25%. Individuals who have already taken out funds will not be able to recontribute.
What this means for you:
- More tax-deferred growth: If you do not need the full distribution from your retirement account(s), you now have some more time to earn tax-deferred growth before full distributions are required again in 2021.
- You still may want to take the full distribution:
- You may still want to review your withdrawal strategies with your financial advisor and tax professional to see if it makes sense to withdraw 100% of the funds this year, depending on your income needs and tax bracket.
- If you have access to a combination of taxable accounts, traditional retirement accounts, and Tax-Free Savings Accounts, accounts, you may want to review which is the best to take withdrawals from, considering both your current tax situation and your desire to leave assets to your heirs.
If you would like to update your existing payment schedule now or delay a payment later in the year, review and complete the payment request change form with your financial advisor.
Delay in Tax Filing Requirements
The federal income tax filing date has been extended to June 1, 2020 for individuals (other than trusts), while the June 15, 2020 deadline continues to apply for self-employed individuals and their spouses/partners. The deadline to pay any balance due for your individual income tax and benefit return for 2019 has been extended from April 30, 2020 to September 1, 2020, and from April 30, 2020 to September 1, 2020 for self-employed individuals or those who have spouses or common-law partners that are self-employed.
What this means for you:
We recommend the following when considering when to file your taxes.
- Are you expecting a refund or to owe taxes?
- If you are owed a refund, it may be best not to wait to file to ensure you receive your refund as soon as possible.
- If you owe taxes and have more immediate expenses, this gives you additional time to pay. That said, you want to make sure you'll still be able to pay what you owe come September 1, 2020.
- If you expect government benefits (such as the Canada Child Benefit or the Goods and Services Tax Credit) you may want to file sooner in order to ensure your benefits are not interrupted.
- Planning for retirement may not be the first concern if there is financial difficulty. We can help determine how the considerations discussed above may impact long-term goals, and what steps (if any) can help provide what you need today while keeping you on track for your goals in the future.
- If you are already in retirement, we can help you prioritize these and other aspects of the Government's emergency response to expand or adjust your plan for achieving your financial goals.
New Student Benefits
On April 22, 2020, the government proposed a number of initiatives intended to help students and new grads affected by COVID-19, including:
- The Canada Emergency Student Benefit for students and new graduates who are not eligible for the Canada Emergency Response Benefit (CERB). This benefit would provide $1,250 per month for eligible students or $1,750 per month for eligible students with dependents or disabilities. The benefit would be available from May to August 2020.
- The new Canada Student Service Grant has been proposed to provide students who volunteer over the summer with $1000 -$5,000 for their education in the fall. The specific amount will depend on number of hours volunteered.
- Canada Student Grants will be doubled for all eligible full-time students to up to $6,000 and up to $3,600 for part-time students in 2020-21. The Canada Student Grants for Students with Permanent Disabilities and Students with Dependents would also be doubled.
- Eligibility for student financial assistance will be broadened by removing the expected student's and spouse's contributions in 2020-21.
- The maximum weekly amount available to students under the Canada Student Loans Program in 2020-21 will be raised from $210 to $350.