The Canada Revenue Agency (CRA) has done a good job of averting a major crisis the pandemic could have brought. It implemented Canada’s largest fiscal stimulus package since World War Two in a matter of weeks, distributing $2,000/month first through the Canada Emergency Response Benefit (CERB) and now through the Canada Recovery Benefit (CRB). In the light of the second wave of the pandemic, it has extended the CRB by three months, or 12 weeks.
The CRA makes big changes to the CRB
In September 2020, the CRA introduced the CRB as a replacement of the CERB. The CRB was for those who did not have Employment Insurance (EI). Under the CRB, the CRA gave $500/week before tax to Canadians who lost their job or took a 50% pay cut for COVID-related reasons. You can apply for the CRB on the following Monday of two weeks from Sunday to Saturday.
There are many other eligibility criteria for the CRB. Those who met the requirements got the CRB after deducting 10% withholding tax. In January, the second wave of the pandemic, the Trudeau government announced a lockdown in several areas. It introduced new travel restrictions to discourage Canadians from traveling and spreading the virus.
Starting January 3, the CRA added another eligibility criteria. Those who travelled abroad can’t claim the CRB or the other sickness and caregiving benefits during the 14-day quarantine period. The government doesn’t want to encourage people to travel abroad.
The CRA’s $19,000 CRB
The CRA introduced another change in the CRB. Initially, every eligible Canadian could get up to $13,000 in CRB over 26 weeks. So those who have been regularly claiming the CRB will exhaust their benefit by March 27. Now you also have to file your 2020 taxes at that time. Moreover, you will have to add the CERB and the CRB to your tax bill. This would leave many unemployed Canadians cashless in April, especially when the unemployment rate is rising again from 8.6% in December to 9.4% in January.
Hence, the government has extended the CRB by three months to 36 weeks, and the maximum benefit amount to $19,000 before tax. So those who are regularly claiming the CRB will exhaust their benefit on June 5. Hopefully, the second wave of the pandemic should ease by then.
The tax implication of the CRB
Note that the CRA will deduct a 10% tax and give you up to $17,100 in CRB. If you have been getting the CRB since October, you can get up to $11,700 in CRB in the 2021 tax year. You will have to add this benefit plus any other COVID-19 benefits to your taxable income and pay income tax accordingly.
If your 2021 net income before adding the CRB exceeds $38,000, the CRA will claw back some or all of the CRB amount when you file your 2021 tax return.
Make your CRA benefits last for a lifetime
It i every time you see the CRA give you such generous benefits. You can make these benefits last a lifetime by putting some of them in dividend stocks through your Tax-Free Savings Account (TFSA).
The pandemic opened an opportunity for dividend seekers to lock in a high dividend yield. A dividend yield is an annual dividend per share as a percentage of the stock price. Hence, the yield rises when the stock price falls and the dividend per share rises. Enbridge (TSX: ENB)(NYSE: ENB) increased its dividend per share by 3% to $3.34 in 2021, adding to its 25-year incremental dividend history.
While the dividend growth was slower than last year’s 9.8%, it was offset by a high dividend yield of 7.5% because Enbridge stock was down 24% from the pre-pandemic level. When oil and natural gas demand recovers in the next few years, Enbridge stock will probably return to its pre-pandemic level, and will return to its average dividend growth rate of around 8-10%.
Investor takeaway
If you invest $2,000 in Enbridge now, your money could grow to $4,654 in 10 years ($2,179 in accumulated dividend growing at an 8% average rate + $475 in capital appreciation).
