CWB – Take Time to Refresh and Educate

Canada Worker’s Benefit (CWB) is a refundable credit of up to $1,428 for singles and $2,461 per family which is received when you file a tax return and earn “working income”, a term that is not defined by CRA. There are other criteria, described below.  This provision deserves a refresh, because one-half of the CWB claimed on the tax return will be pre-paid for the following year in three instalments: July, October, and January.

Aside from the working income requirement, which tax software calculates as actively earned income from employment or net self-employment, recipients must be a resident of Canada throughout the tax year and be 19 years old or older, or if younger, live with your spouse or common-law partner or your child.

Who doesn’t qualify? There are three categories:

• Those enrolled as a full-time student at a designated educational institution for more than 13 weeks in the year unless, on December 31, there is an eligible dependant, which is someone who is  your child or your spouse's or common-law partner's child,  under 19 years of age and lives with you on December 31 and not eligible for the CWB
• Those confined to a prison or similar institution for a period of at least 90 days during the year
• Those who do not have to pay tax in Canada because they are an officer or servant of another country, such as a diplomat, or their family members or employees

Definition of Spouse.  For these purposes this is someone who lives with the taxpayer as their spouse or common-law partner on December 31 and who is a resident of Canada throughout the year. In addition, the ineligibility rules listed above apply.

Definition of Adjusted Income. The definition of adjusted income for these purposes will not include the deemed capital gain, under the disposition of securities acquired under an employee securities option plan. In addition, starting in 2021 there is a secondary earner exemption of $14,000  for the purposes of these calculations. All benefit levels, this exemption, and income thresholds are indexed annually as shown below.

Definition of Working Income. The government has introduced this term for the purposes of this credit but then does not provide a clear definition on its website. It includes active income from employment or net self-employment (gross income less expenses).  That’s important when you are explaining to clients why they have received the benefit and more importantly, why they will start receiving advanced benefits.  

Further, take note for the self-employed, to maximize the use of optional provisions. For example, claiming too much capital cost allowance could create a loss, thereby eliminating working income and therefore access to the CWB.  It may be better to forego that claim and carry a higher undepreciated value forward to next year.

Automatic Advance Payments

In the Fall 2020 Economic Statement, the government announced that, beginning in 2023, so long as the prior-year tax return is filed by November 1 of the current year, one-half of the CWB claimed on the tax return will be pre-paid for the following year in three instalments paid in July, October, and January.  When the tax return is filed for the following year, any CWB claimed but not already received will be added to the tax refund.  The old process of applying for advance payments will not be available after January 1, 2023.

Bottom Line:  Check into your eligibility for the CWB and the CWB advances which are only available if a tax return is filed.  This can increase tax free cash when proper tax filing techniques are used.

Become a DMA™-Tax Services Specialist in your community and help people get access to all the benefits they are entitled to while you earn a second or independent income.