Have you done your taxes yet? If not, now is the time. The Canada Revenue Agency (CRA) has set April 30 as the deadline to file your income tax returns for 2020. You first need to calculate your taxable income. Apart from the working income, your taxable income should also include all the benefits that you received from the CRA under the COVID-19 pandemic relief program.
The CRA is giving interest relief of one year on your unpaid 2020 income tax bill in the light of the pandemic. With this move, the CRA aims to encourage Canadians to file their income tax returns. This article will tell you everything you need to know about this interest relief.
The CRA offers interest relief on the 2020 tax bill
The CRA usually charges interest on the taxes that you owe after the income tax deadline has crossed. However, for 2020, the agency has waived this interest component until April 30, 2022, due to the pandemic. This gives you an ample amount of time to pay your income tax debt. The CRA will start charging interest if you do not pay your income tax bill after April 30, 2022.
Who is eligible for interest relief?
The CRA has set certain conditions you need to meet to be eligible for the interest relief on your 2020 tax bill.
- Your taxable income for 2020 should not be more than $75,000.
- You should have received at least one of the following COVID-19 benefits last year: Employment Insurance (EI) benefit, Canada Recovery Sickness Benefit (CRSB), Canada Recovery Caregiving Benefit (CRCB), Canada Recovery Benefit (CRB), Canada Emergency Student Benefit (CESB), Canada Emergency Response Benefit (CERB), or provincial or territorial emergency benefits.
You should meet both the conditions and file your returns to qualify for interest relief. Please note that the interest relief will not apply to your previous outstanding debts with the CRA.
The CRA retains the late-filing penalty
The CRA will charge a penalty of 5% if you file your income tax returns after the deadline. This will increase your income tax bill. The agency will also charge an additional 1% per month, up to 12 months, if you fail to file your income tax returns even after one month of the deadline. This will inflate your income tax bill further.
You should file your income tax returns before the deadline to avoid the late-filing penalty. This way, you can take advantage of the interest relief.
How can you earn tax-free income?
If you have received even one COVID-19 benefit in 2020, you can put some of that amount in your Tax-Free Savings Account (TFSA). The CRA does not charge any tax on the withdrawals that you make from this account. You can put a maximum of $6,000 in your TFSA in 2021.
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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 Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.