The Motley Fool

WARNING: Canada Revenue Agency Will Tax Both the CRB and CERB!

Image source: Getty Images

The Canada Revenue Agency (CRA) distributed generous cash benefits of $2,000 per month and several one-time benefits to Canadians during 2020. These COVID-19 benefits were a part of the Canadian government’s stimulus package to keep the economy from going under due to mandatory lockdowns.

The CRA paid benefits like the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB) to Canadians. However, you should know that these payments do not come tax-free. The CRA will take some of the payments back in the next tax season because they will count as part of your taxable income for this year.

I will discuss the tax implications of CERB and CRB. Additionally, I will discuss how you can invest in a high-growth tech stock to offset your tax bill.

CERB taxes

The CRA paid eligible Canadians $2,000 for four-week eligibility periods through CERB. If you qualified for CERB throughout the time it was around, you could have collected a maximum of $14,000 for seven months. The money you have received will count as part of your total taxable income for 2020.

There were several issues with CERB payments. Some people received double payouts by collecting from Service Canada and the CRA. Others received both CERB and Employment Insurance (EI) benefits. There were also instances where people collected CERB despite earning more than $1,000 during the benefit period, making them ineligible for the benefit.

The CRA can ask you to pay back your CERB benefits if you did not qualify for the benefit but collected the payouts. If you repay any amount misallocated to you before December 31, 2020, the CRA will exclude the repaid amount from your 2020 tax filing. Delaying it would entail the CRA collecting the payments during the 2020 tax season.

5 Stocks Under $49 (FREE REPORT)

Click here to gain access!

CRB taxes

CRB replaced CERB when it ended. The CRA made several changes with CRB. The government agency is preemptively deducting a 10% tax at the source but is adding the remaining amount to your taxable income. If you continue to claim CRB and qualify for all its eligibility periods, you can add up to $5,400 to your taxable income for 2020.

If your annual income, including CERB and excluding CRB, is $38,000 or more, the CRA will take back $0.5 from CRB money for each dollar you are above the annual income limit.

Offset your tax bill

If you managed to set aside some of the money you collected from CERB and CRB or have savings in cash that you can use, I would advise using it to offset the tax bill. If you invest in a high-growth tech stock like Lightspeed POS (TSX:LSPD)(NYSE:LSPD) and store the shares in your Tax-Free Savings Account (TFSA), you can use your returns to pay down some of the tax bills.

Lightspeed can be an excellent stock to consider for several reasons. The tech company initially suffered a loss of revenue with the onset of COVID-19 since its customers had to close down their businesses. However, it enhanced its omnichannel solutions to help retailers, restaurants, and other businesses to integrate into the e-commerce industry seamlessly.

The booming e-commerce industry got a boost due to the lockdowns, resulting in an increasing demand for Lightspeed’s services. Lightspeed is trading for $50.76 per share at writing. The stock’s valuation has more than tripled since its March 2020 bottom and shows no signs of slowing down.

Foolish takeaway

While paying your taxes is necessary, there is nothing stopping you from offsetting your tax bill through passive income. Investing in a high-growth stock like LSPD can help you increase the value of your invested capital.

Storing it in your TFSA means that you can get the returns tax-free. You can easily use your profits to pay down some or even all of the tax bills in the next tax season.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of Lightspeed POS Inc.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.