How to handle your finances when CERB ends
Then there’s taxes on the money. While the government is giving the money without deducting the taxes upfront, it isn’t tax-free. Recipients will have to declare the money as income and pay taxes on it depending on their total gross income for the 2020 tax year.
On July 31, the federal government announced that it will create a transitional benefit for people who were on CERB but don’t qualify for employment benefits (EI). This benefit, meant for contract and gig workers, will resemble EI. Training will be offered and people who use this benefit will be able to work more hours than on CERB without having to worry about a clawback of benefits. More details are expected to be announced soon, including length of the benefit, the amount and tax expectations.
Certified Financial Planner Shannon Lee Simmons has been spending a lot of time answering questions about COVID-related government benefits for her clients. There are options for what to do when CERB and this new benefit end, she says but they depend on what assets you have, how much debt you owe, and what position you will be in in the long-term.
Here are some strategies for protecting yourself financially. You may find that you’re already doing many of these things:
Slash your expenses
“I have seen a real shift in spending behaviour since the pandemic started,” says Simmons. “In March and April I saw so much emotional spending—and not in a bad way. I never made anyone feel guilty about it. People were buying expensive coffee machines, the Peloton bike and things trying to make their life feel normal.” She says that as time passed, people stopped panic-buying and are being more mindful of how they spend their money. They’re cutting back on their needs and focusing on putting it away just in case there’s a second wave of COVID-19 and more layoffs.
Look to your savings first
An emergency fund—if you’ve had the foresight and the good fortune to build one—by definition is a financial resource to dip into when you need to top up your income, or are faced with a surprise expense, like a roof repair. Curiously, though, Simmons says, “I find a lot of fear around using saving. People are more comfortable and likely to use a line of credit to bail themselves out of an emergency.”
While using a line of credit after CERB runs out is completely justifiable, she says, if you have savings and are wondering whether to use it versus a line of credit, she suggests taking the option that keeps you from adding to your debt.
Take advantage of low interest rates
If you’re a homeowner who’s paid down a chunk of your mortgage, lining up a home equity line of credit (HELOC) is a good idea right now because interest rates are low, says Simmons. If you aren’t in a position to apply for a HELOC, consider an unsecured line of credit. While the rates aren’t as low as a HELOC because the funds you borrow are not backed by an asset, an unsecured line of credit is still much cheaper than the standard rate on credit cards.