The economic crunch created almost overnight by the COVID-19virus has prompted unprecedented drastic action by governments in North America. Canada and Quebec have cut taxpayers some slack by extending the deadline for filing income-tax returns and – perhaps more importantly for many taxpayers – pushed back the date for paying an outstanding tax balance without being assessed penalties and interest. The United States also has delayed its tax-filing deadline and put in place a generous grace period for dealing with tax owing.
Several other relief measures were also announced, key among them a reduction on the minimum withdrawal retirement for registered retirement income funds (RRIFs).
You have an extra month to file
The federal government has changed the filing deadline to June 1, 2020 from April 30. Quebec also has pushed back the filing deadline for provincial returns to June 1. As with the normal procedure, returns must be submitted to the tax departments by midnight on deadline day, which means electronic files must go through by that time and envelopes containing paper returns must bear a postmark prior to that hour. After June 1, if you have a balance owing, you will be assessed a late-filing penalty and interest of 1% per month of any unpaid balance.
Note that if an individual – or their spouse – is reporting any income from a business or professional practice, the usual filing deadline of June 15 remains in place both federal and Quebec returns. Also, if you apply for payment amounts such as the GST credit or child tax benefit, you should still file your tax returns as soon as possible.
Trusts with a year-end of December 31, 2019 have had the filing deadline extended to May 1 from March 30. Those with other year-end deadlines have not been granted an extension.
Grace periods for paying tax due
Taxpayers who have a balance to pay can now wait until August 31 to pay any federal income tax outstanding without incurring penalties and interest. Quebec residents also have until August 31 to settle-up. These deadline extensions also apply to contributions owing by self-employed individuals to the Canada Pension Plan and Quebec Pension Plan, and to contributions payable to Quebec programs such as the Quebec Prescription Drug Insurance Plan, Health Services Fund and Quebec Parental Insurance Plan. Penalties and interest would be payable as of Sept. 1 for both federal and Quebec amounts. (Quebec initially had set July 31 as the revised tax-payment deadline, but then adjusted this to August 31 to harmonize with the federal changes.)
June 15 tax instalments
For those who must pay income tax by quarterly instalments, the March 15 amount was still due on that date. However, the June 15 federal tax instalment will now be due by Aug. 31. For Quebec tax purposes, the June 15 instalment also is now due no earlier than August 31; however, the exact revised deadline date is to be announced later.
For those who must file a U.S. return
The deadline for filing a 2019 U.S. federal income tax return has been postponed to July 15, 2020, from the usual April 15. The announcement came two days after the due date for paying income tax owing was deferred to July 15, three months after the normal deadline of April 15. Income tax instalments continue to be due on the normally scheduled dates. The filing extension is separate from the existing procedure that allows taxpayers to apply for an extension to file a U.S. tax return up to six months after the usual deadline.
Minimum RRIF payment cut by 25%
The normal minimum annual withdrawal amounts for RRIFs have been reduced by 25%. This will give seniors a break from having to remove more money from a retirement savings portfolio with assets that may have been depleted following the plunge of markets due to COVID-19.
Someone who was age 70 as of January 1, 2020 now need only withdraw 3.75% from his or her RRIF during 2020, rather than the normal requirement of 5%. For a portfolio with $200,000 in assets, this reduces the minimum withdrawal to $7,500 from $10,000.
Similarly, someone aged 75 at the beginning of 2020 now must take out at least 4.37% from his or her fund, rather than 5.82%. The minimum amount on a $200,000 portfolio thus falls to $8,730 from $11,640. And a 90-year-old’s minimum withdrawal is now 5.12%, instead of 6.82%, resulting in a minimum withdrawal for 2020 of $10,230, as opposed to $13,640.
We will update this article with more information as it becomes available.
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