Lesson 9 Chapter 3
Your 2020 taxes are based on your taxable income from January 1, 2020 to December 31, 2020.
Therefore, whatever you earned until your income dropped or stopped in March or April will be included in your total income for 2020.
You will need to determine how much you've earned for the first few months of the year.
This information will be on your last pay stub or documentation you received if you were laid off. If you are self-employed, it is based on your business accounting.
This can cause trouble because much of the money you received through employment has been allocated or spent already. However, your previously earned income for the first quarter of 2020 will determine how much of your CERB will go to tax.
My thoughts on this, and yours may differ from mine, is that right now survival is the greatest concern.
Therefore, you must pay your essential expenses first. You need to look after food and shelter first.
Then put the estimated amount owing to tax in a savings account. This will become your small emergency cash fund. If you need it for food and shelter, use it. If you are fortunate and do not require it, you'll have the money to pay your tax owing.
Yes, if you use the money saved to pay taxes for food and shelter then you will owe the government taxes. But you will have taken care of food and shelter and will hopefully be in a better financial position where you can work and save to pay off the taxes owing.
Below is the 2020 Canadian Federal Tax Rates.
If your total income for the year will be less than $48,535, then 15 per cent ($300) of each CERB payment of $2,000 should be saved to pay future taxes and become your emergency savings.
If your total income for 2020 will likely be above $48,535, then you will need to save a higher percentage for your 2020 taxes. The chart below will help you know how much to save. The Federal Tax Rate is gradual, meaning you'll pay 15 per cent up to $48,535 but then 20.5 per cent on every penny above $48,535. To keep the calculation simple you can just use the rate below.
Taxable Annual Income
Federal Tax Rate