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As 2020 comes to a close, it’s time to assess your yearly finances and prepare for tax time. Since this year involved many unprecedented government benefits, it’s left many wondering how to proceed when it comes time to file. The key to success is gaining a thorough understanding of the benefits and how the government plans to tax them. Equipped with this information, you can make plans that best serve your long-term financial goals.
Learn how taxes work it Canada.
Tax benefits issued to an individual, as opposed to a business or organization, can cause a lot of confusion when it comes to claiming them on an income tax return. Each benefit is a little bit different, with some withholding tax and others paying it out in full. Understanding the process for each benefit is essential to properly file your return.
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Businesses, like individuals, were adversely impacted by the pandemic. As such, the Government of Canada instituted a variety of benefits to help offset the expenses. While there are some similarities between the support structures, because income structures for businesses and individuals are inherently different, so are the available benefits.
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When it comes time for taxes, it’s helpful to have at least a rough idea of what to expect in terms of payment. Since this has been a unique year, in terms of finances especially, it is important to account for taxes. While taxes are standardized in terms of the procedure, there are still many variables.
The amount of tax you are required to pay is determined on a sliding scale. The amount you owe depends on your total income for the 2020 fiscal year. This includes all taxable benefits, standard income, and money from other sources like your investment portfolio.
In Canada, there are five income brackets that determine the amount you will be taxed. The structure of these brackets is designed to place less of a tax burden on those who will not be able to afford the expense. It is structured so that the more you earn, the more you pay. The brackets function as follows:
15% | up to $48,535 |
20% | between $48,535 and $97,069 |
26% | between $97,069 and $150,473 |
29% | between $150,473 and $214,368 |
33% | on amounts over $214,363 |
Using these brackets, you can calculate the amount of tax you can expect to pay when it comes time to file. Keep in mind that Quebec residents must also file an income tax return with Revenue Quebec. The funds earned in these benefits apply to this total as well. However, for those residing in other provinces, only a Revenue Canada income tax report is necessary.
Need help filing your taxes? Check out Turbotax.
To prudently manage your finances, especially when taxes are involved, it’s important to plan ahead. This is all the more true during unprecedented situations like the COVID-19 global pandemic. While government benefits offer a lifeline to countless businesses and individuals, until tax time is completed, the process is not complete.
If you received benefits during 2020, it is prudent to do some calculations on the taxes you can expect to pay. If you need to offset this expense, there are options available such as TFSA and RRSP investments. To understand how much you need to invest, it’s important to calculate all of your income, including benefits. With this information, you can plan ahead, set some funds aside, and ensure that no unpleasant surprises arise when you pay your income tax for 2020.
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Loans Canada is pleased to announce it placed No. 131 on the 2022 Report on Business ranking of Canada’s Top Growing Companies.
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