Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
A balance has to be set between your income and expenses, especially when starting out an e-commerce business. This allows you to stay afloat as you grit it out for profit. Often, the scales tip unevenly when government expenses, particularly taxes, are involved. Unfortunately, this is something you almost have no control over— you have to pay, or you break the law.
Good thing the government also finds a way to help out upcoming e-commerce entrepreneurs like you. The Working Income Tax Benefit is one form of help you can take advantage of if you're bootstrapping.
Overview: Working Income Tax Benefit / Canada Workers Benefit
What Is It?
The Working Income Tax Benefit (WITB) is an amount refunded to qualified individuals and families in the form of a tax refund.
In 2019, WITB was renamed Canada Workers Benefit (CWB) and included many other low-income worker groups that weren't previously covered by the program. The CWB now covers more than three million Canadians that qualify for the benefit.
By increasing disposable earned income (in the form of a refundable tax credit), the CWB aims to incentivize people in low-wage sectors to spend more and the unemployed sector to rejoin the workforce. This stimulates economic activity and growth through spending.
The CWB has two components: the basic amount and the disability supplement.
How Does It Work?
If your income level reaches $3,000, you'll get an amount of $0.26 for every dollar you make past that income level. You will continue to receive this benefit up to a certain extent. If you reach the benefit threshold, the amount you get is reduced. The higher your threshold gets, the lower the benefit goes until you no longer receive an amount for every dollar.
What's good about the CWB is that you receive an additional income. That means if you're going to make a personal or business loan, the benefit you receive from the WITB / CWB will be treated as such and will boost your chance of getting a loan.
You may receive the benefit as an entire amount, or you can have it on a staggered basis. If you need to request advance payments, you have to complete Form RC201 and submit it by August 31st. If you don't submit on the date stated, it will not be processed.
The catch of the CWB is you have to properly pay your taxes electronically or otherwise for you to receive this benefit. The government takes any excess you paid in the form of tax and returns it to you in the form of an income. Should the amount you're eligible to receive exceeds the tax you paid, the Canadian government will shoulder it. Another catch of the CWB is that only one eligible member of the household can apply.
Changes: Working Income Tax Benefit vs. Canada Worker's Benefit
The CWB has tweaked some of its processes and rates to expand its reach and serve more Canadian citizens. Here's what changed in the new program.
Higher basic rates - The CWB rate is now 1% higher than the previous WITB. You will now get 26% of every income you make over $3,000 compared to 25% when the WITB was still operating back in 2018.
Higher reduction threshold - the limit for single individuals without children is increased by 6% in the new CWB, while the limit for families increased by 2%. This gives both individuals and families more wiggle room for excess income while still reaping the benefit amount fully.
Lower reduction rates - the rate at which your benefits are reduced when you reach the income threshold is reduced from 15% to 12%. That means you still get more from your government even if your income increases to a point where your benefit is reduced.
Expanded accessibility - Even if you don't claim your benefit, Canada Revenue Agency (CRA) makes it a point to calculate the amount of worker's benefit you will receive so long as you're filing your taxes. Aside from this, you will also be assessed based on the information you give when filing taxes if you're eligible (or no longer eligible) for CWB. This effectively expands access, not only to those who need it, but it proactively includes those who can have it.
Here's a table showing the detailed amounts and rates of the WITB and the new CWB.
|Single without children||$1,059||$1,335|
|Income threshold for reduction - Single w/o children||$12,016||$12,820|
|Income threshold for reduction - Families||$16,593||$17,025|
|Income rate||25% over $3,000||26% over $3,000|
|Phase-out threshold - Single w/o children||$19,073||$24,111|
|Phase-out threshold - Families`||$29,410||$36,483|
|Reduction rate - one spouse||15%||12%|
|Reduction rate - both spouse||6%||7.5%|
Canada Workers Benefit / Working Income Tax Benefit Eligibility
To be eligible for CWB, you will have to meet the following:
For Basic Amount - Individual
- You must earn a working income of over $3,000 either as an employee or self-employed.
- You're 19 years old or older on December 31st of the taxable year.
- You are a Canadian resident throughout the year.
For Eligible Spouse
- Your spouse must live with you or be recognized as a common-law partner on December 31st.
- Your spouse meets the same eligibility criteria for an individual.
For Eligible Dependent
- It is your child or your spouse or partner's child.
- The dependent is below 19 years of age.
- Doesn't earn a working income and therefore is not eligible for the CWB program.
Eligibility for disability supplement means you have an approved T2201 Disability Tax Credit Certificate. In addition, your income must be over $1,150.
- If both you and your spouse are eligible, only one of you can claim the CWB benefit.
- If you or your spouse have a child that meets the criteria as an eligible dependent, you or your spouse can claim the benefit.
- If you apply for a CWB advance payment, you're obliged to also claim the CWB. Your spouse can no longer claim it.
- Both you and your spouse can claim a disability supplement if both of you are eligible and have a disability.
What's In It For You?
If you own a legitimate e-commerce business that's just starting out, it’s most likely your income would be in the lower bracket. Taking advantage of every business or personal tax and income benefit at this stage will give you and your business a financial wiggle room. You can use the CWB benefits you're going to get and infuse your business with it, or you can use the benefit to cushion your personal expenses so you don't have to take from your business. This sounds like a good deal.On the other hand, if your hands are tied, you can consult with Unloop regarding Income Tax Benefit accounting on whether your income level meets your eligibility. The team at Unloop can help you arrange and report your business financial standing so you can take advantage of tax benefits such as the CWB. So give them a ring today.