COVID-19 has complicated the tax season significantly. The government extended the filing deadline to June 1st to give individuals an extra month to get organized. Tax clinics and accounting firms had to close to follow social distancing measures. Some moved their services online so that they could still help people navigate the ins-and-outs of the filing process.
Most importantly, COVID-19 has had a massive impact on Canadians’ personal finances, making it extremely difficult to manage payments for the Canada Revenue Agency (CRA).
Residents of the Greater Toronto Area have had their lives turned upside-down by the pandemic of COVID-19. Here at David Sklar & Associates, we understand that many residents have been thrown into financial instability because of this health crisis and are concerned about what to do next.
COVID-19’s Financial Impact
Saying that COVID-19 has made an impact on the Canadian economy is an understatement. Soon after the virus reached the country, small businesses closed their doors and larger companies made mass-layoffs, leaving employees confused about what they could do about their upcoming bills.
Job opportunities were suddenly scarce — more businesses tightened their pocketbooks and changed their practices to meet social distancing measures. The only job calls in demand (grocery clerks, delivery drivers) involved interacting with the public.
By the end of March 2020, citizens were panicking about their finances. Many of the laid-off workers felt completely blindsided by the circumstances, with no emergency funds or savings to rely on. Their main source of income was removed, and they had no recovery plan. According to an Angus Reid Poll, 1 in 3 Canadians were worried about missing mortgage or rent payments in the future. Approximately 44% of respondents said they had lost work or had someone in their household lose work because of COVID-19.
Other complications affected people’s personal finances. Schools and daycare programs were closed, so many parents were forced to choose between juggling full-time work and childcare. Some people had to take time off to take care of loved ones who needed support or who had fallen ill. And of course, people lost out on wages when they or a member of their household tested positive for the virus.
COVID-19 has made paying off 2019’s tax returns a real challenge. When you’re concerned about covering your rent and your bills by the end of the month, taxes may seem like an impossible goal to commit to. But they don’t have to be. See what steps you can take to make it easier to make those payments to the CRA.
How to Budget for Taxes
If you’re wondering how you’re going to send the funds that you owe from 2019 consider how to navigate the CRA’s new deadlines and how to stretch your money during a crisis. Learn the best steps that you can take if you are insolvent.
Take Advantage of the CRA Extension
The CRA extended the tax filing deadline from April 30th to June 1st, 2020. A survey from H&R Block from early May found that 45% of Canadians hadn’t filed their taxes by April 30th, allowing them to take advantage of this new deadline. Although, 10% of Canadians weren’t aware of the change at all.
If you missed this extended deadline, you should file as soon as possible because you may be charged a late-filing penalty. The penalty is 5% of your 2019 balance. An additional 1% is added for each month that you’re late for filing the return — this continues for up to 12 months. So, save yourself on unnecessary costs and file the return, even if you’re unsure whether you can make the payments later on.
You can also take advantage of the deadline extensions for payments, too. You now have until August 31st, 2020, to make your payments before they start accruing interest. Having a couple more months before the deadline could give you an opportunity to boost your budget and make those payments on-time.
Get Government Financial Aid
If you’ve lost your job because of COVID-19, you should sign up for emergency government aid as soon as possible. The federal government has set up the Canada Emergency Response Benefit to provide temporary income support for citizens in your position. You will receive a benefit of $2000 every four weeks for up to 16 weeks.
You should know that CERB is taxable, so you should aspire to set aside some savings for next year. Read more about this in our blog post “The Drawback of the Government’s COVID-19 Financial Help” to see how this temporary solution could be a problem for applicants in 2021.
Here are some other forms of government aid that could be useful:
- The Canada Child Benefit
- The Canada Emergency Student Benefit
- The one-time benefit for seniors
Look for Other Financial Support
You can still find support outside of the federal government to take some of your regular financial burdens off your shoulders. You could call your bank to defer your mortgage payments and property taxes for up to six months.
You could call your creditors to explain that COVID-19 has led to financial instability and see if they can offer you some assistance with payment extensions, deferrals or suspensions. If you rent your home, you should contact your landlord to see if they can be flexible about your payments. Reaching out to these authorities could be extremely helpful.
Avoid Emotional Spending
It’s an emotional time, which means you might not make the wisest financial choices. You might be panic buying groceries and essential supplies like toilet paper, soap and sanitary wipes. While having a fully-stocked kitchen will make you feel prepared for disaster, you’re better off having a full bank account. Stay calm and collected when you’re doing your errands.
Another emotion that can hurt your budget is boredom — this is especially true if you’re unemployed and living on your own. Boredom often pushes people to turn to retail therapy and overspend on impulse purchases. This is a risky habit when money is tight. If you’re feeling restless while social distancing, you should look up free things to do online to keep yourself occupied and leave your funds untouched. With internet access, you can find lots of entertainment options like concert live streams, cooking workshops, workout classes, games and more.
Make a Strong Budget
A budget will help you track your monthly expenses and stop you from spending beyond your means. If you already have a budget, you will need to revise it to fit the current circumstances. You might find that you’re spending more on groceries, utilities and deliveries than usual. You might find that you’re saving more money on transportation and entertainment.
You can download a budgeting app or put together a standard Excel spreadsheet on your computer. Or, you can make your budget the old-fashioned way using a piece of paper, a pencil and a calculator. If you need help with the details, you can look for budgeting tips and other financial help on our official website and blog.
Get Credit Counselling
If you usually have trouble managing your finances and meeting your savings goals, you should consider talking to a licensed insolvency trustee. Our firm offers credit counselling services that can focus on lessons like budgeting, responsible credit use and much more. These sessions could help you resolve the money issues that you’ve had for a long time.
Credit counselling is not a quick fix. It’s an educational experience that encourages clients to establish better financial habits and un-learn risky habits to make it easier to manage money and achieve financial goals, no matter how big they are. Signing up for this type of counselling could be life-altering. You could save yourself a lot of stress and debt when you have this crucial knowledge under your belt.
How can you get credit counselling? Social distancing measures are still in effect, so the firm is currently closed to the public. But we are still offering our services online and over the phone. You can contact us during the crisis to set up consultations and appointments without worrying about putting your health and safety at risk.
What If You’re Insolvent?
Extensions and careful budgeting might not be enough help for you. If you’re insolvent (unable to pay your debts), you’re going to need to take more drastic measures to pay the CRA what you owe them.
When you find that you’re drowning in payments, even after receiving government aid and changing your money management habits, you should turn to one of the options below.
Call the CRA
The CRA is aware that many Canadians will be experiencing financial hardship this year. The organization knows that many people have lost their jobs, businesses, investments and savings because of this unprecedented crisis. They have promised to be flexible and understanding, acknowledging every individual on a case-by-case basis.
So, if you can’t pay for your 2019 tax returns this year, you should contact the CRA to make a payment arrangement. They could provide you some relief, like reducing the amount that you owe, removing penalties or removing interest to make repayment much more manageable. Click here to see how you can submit a request for Taxpayer Relief this year.
File for a Consumer Proposal
Another thing that you can do when you’re struggling with insolvency is contact a licensed insolvency trustee firm and ask about filing a consumer proposal. The trustee will set up a consultation, go over your personal finances and see if that’s the best option for you.
A consumer proposal is a legally binding agreement that you can make with multiple creditors, including the Canada Revenue Agency. The proposal is supposed to help a debtor pay off their creditors in a realistic timeline without hurting their basic needs (housing, food, and utilities). It makes this goal possible by lowering the total debt amount and pausing additional costs.
Here are some other benefits that come with a consumer proposal:
- Keeping your assets
- Avoiding additional interest charges, late fees and penalties
- Stopping collection calls
- Stopping wage garnishing
- Stopping any legal action against you for the purpose of collection
- Avoiding personal bankruptcy
The licensed insolvency trustee will help you create the proposal and send it to the creditors. If the majority of the creditors agree to your terms, then the proposal is in effect from this point forward. After the agreement, the debtor must follow the repayment schedule until the set deadline, which is a maximum of 5 years after the start date. If you fall behind three months in your payments without talking to your trustee and filing an amendment, then the proposal is no longer legally binding.
The creditors will also have to follow the terms of the proposal after signing. They must not charge you any more interest, late fees or penalties throughout the repayment process. Any legal actions that were taken against you before by these creditors, like wage garnishment, will have to stop. Any legal actions that these creditors intended to take against you will also stop. All collection calls are suspended. They are not allowed to contact you whatsoever. If that happens, they are violating their terms and you have to inform your trustee.
To qualify for a consumer proposal, you must owe less than $250,000 (excluding the mortgage on your primary residence). If you don’t qualify, you will have to look at other options for debt relief during this uncertain time, like a Division 1 Proposal or personal bankruptcy.
David Sklar & Associates:
If you need financial help, we are still here for you. We offer over-the-phone consultations and electronic document signing so that you can access our services from the safety of your home. We want to encourage our clients to prioritize their health as best as they can during these uncertain times.
Dealing with your taxes feels like an intimidating responsibility at the best of times. When you’re already feeling the stresses of COVID-19, budgeting for your payments to the CRA can feel completely overwhelming. It’s important that you know that there are plenty of steps that you can take on your own or with the help of David Sklar & Associates that can make this obligation much easier.