# Tax bill out of left field, what can we do?



## swoop_ds (Mar 2, 2010)

Hello,

My fiance is a healthcare worker who received a 20000 grant for working and living in a small town. She has since spent the money on school debts, house downpayment, etc. The 20000 was not taxed and there was no mention in the package saying anything about it being taxed. We received a tax slip for it in the mail in march... that's a BIG tax slip out of left field. 

Hindsight is 20/20 and I should have thought that it would be taxed as this sort of thing happened to me with a scholarship once. 

Do we have any recourse in this? It seems silly to give someone 20000 and not take any tax off of it, it seems to border on stupidity (I realize my stupidity in this as well!). I phoned CRA and they weren't much help. They said to maybe talk to the government of Saskatchewan (the grant issuer) but I dono really what could be done.

Anyone have any ideas???

Thanks,
-Dave


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## OhGreatGuru (May 24, 2009)

Thinking anyone would give you $20K tax-free without seeing it in writing was the stupid part.

Tighten your belts & negotiate a payment schedule from CRA. There are few free lunches in this world. Your fiance should have detemined if this was taxable before spending it. I wouild be very surpised if somewhere in the documentation she signed/received it did not tell her this was taxable income. I suspect Sask. did not withold taxes because she was not on their "payroll".


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## FrugalTrader (Oct 13, 2008)

If CRA rates are high (if they accept installments), I would look at getting a personal line of credit or similar to pay the tax bill.


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## MoneyGal (Apr 24, 2009)

You guys are harsh! 

It is actually quite reasonable (or, at least "not unreasonable") to assume that grant income is tax-free, as many forms of "grant" in Canada are structured as forgiveable loans (not taxable as income when received) or repayable awards (only taxable to the extent the award is not repaid). 

The word "grant" is used to cover a lot of different kinds of income, some of which is taxable from the get-go, some of which is never taxable, and some of which is taxable only if certain conditions are met. 

In addition, a lot of the rules about grant income have changed fairly recently (in the last 5 years, which is "recent" in tax terms). 

Anyways. The interest payable on taxes owing to CRA is currently 5%.


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## FrugalTrader (Oct 13, 2008)

MoneyGal, thanks for the clarification!


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## swoop_ds (Mar 2, 2010)

Yeah we think the LOC will be what we end up doing. I know that it is our fault for not expecting this but I still think it's silliness for there not to be bold, underlined, highlighted text in the letter saying: "MAKE SURE TO LEAVE 8000 ASIDE FOR TAXES".

We dug through our papers and found the original paperwork, the following line buried deep in the letter: "This grant may be taxable depending on your income". So they did tell us, but I'm sure my fiance didn't even read the letter, she probably just saw the 20000$ cheque attached to it... 

I do think that it's strange that they use the "may" in the statement above. It's income, and therefore it's taxed. . . end of story I think? I couldn't think of a scenario where this 20000$ wouldn't be taxed. Stupid government of Saskatchewan, way to make me want to stay here... (which is the purpose of this loan).

Thanks for the help guys,
-Dave


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## Addy (Mar 12, 2010)

Yes, thank you Money Gal - you beat me to it... I was going to say I have received some grants that were not taxable and some that were so it's not difficult for me to see how someone would be surprised by the tax status of some grants.


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## ghostryder (Apr 5, 2009)

The only way you wouldn't have know this was taxable was if you didn't read the information provided when you applied.


The link seems broken now, but up until a few days ago this was still available:


"Are the grants taxable?

Yes, the grants are a taxable income. You will receive tax documents that you must include with your tax return. "

http://74.125.95.132/search?q=cache...for+Health+Employees&cd=1&hl=en&ct=clnk&gl=ca


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## swoop_ds (Mar 2, 2010)

I also found that buried in the FAQ. . . what a joke. I still think that they should have either withheld some, or there should have been a super obvious highlighted, bolded, text about it being taxed...

It's one thing getting 1000-4000 for a scholarship and then getting taxed at the end, but 20000?? That's a lot of taxable income. I highly doubt that my fiance was the only one who didn't realize that it was taxable. . .

In any event, this thread isn't about our lack of reading the buried information about this grant being taxable, it's about if there is anything we can do other than bend over to the government?

Thanks,
-Dave


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## FrugalTrader (Oct 13, 2008)

If your wife made any RRSP contributions in 2009, it should help with the tax burden.


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## MoneyGal (Apr 24, 2009)

Well, now I'm going to sound harsh. 

The income may be taxable, and may not; depending on the tax circumstances of the recipient. (Actually, the accurate way to say that is the income is taxable, but whether any tax will be owed on that amount will depend on the tax circumstances of the individual.) So what the FAQs say is accurate. 

If it was a recipient's only income, and they made a sufficiently large RRSP contribution, and/or had other deductions (children, medical, educational, etc.), then no tax would be owing. 

The provider cannot say "set aside $8K for taxes" because the total amount owing is very individual, not generic. And the reason the grant issuer did not withhold tax is that they didn't establish a payroll, and this isn't payroll income (and is not subject to CPP or EI withholdings). They don't want to have any kind of ongoing relationship with the recipient; they just want to disburse the funds. They don't want to do remittances (withhold taxes and remit them to CRA on behalf of recipients).

Editing to say my original post on this topic was generic; this post was created after reading about the specific grant income received.


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## Four Pillars (Apr 5, 2009)

To be honest I might have assumed it was tax-free as well. Although after re-reading your post

*20000 grant for working and living in a small town*

that sure sounds like potential taxable income to me. It's confusing because the word "grant" means "tax free" in my mind. 

I think if you want to do something constructive, you should write a letter to the office that sent you the documentation and explain your situation - suggest that they highlight the taxable nature of the grant. They might actually fix this and prevent it from happening to anyone else. Try to be nice in your letter otherwise it will get thrown in the garbage.

Regarding the withholding tax idea - not going to happen. How much should they withhold? Is your wife's net income $20k, $100k, $10k? They have no idea.

As for your original request - I would try to do some research to verify if the grant is taxable or not (although it sounds like it is). Otherwise you just pay the tax bill.


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## the-royal-mail (Dec 11, 2009)

Does the OP have an accountant who does their taxes for them? Has their 2009 tax return been done already? If yes to the 1st question and no to the 2nd, ask your accountant. If they know your situation and the tax rules they can answer the question.

I am a bit surprised that CRA was not helpful though. I've never dealt with them but for some reason was thinking they spend their day answering questions like this.


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## swoop_ds (Mar 2, 2010)

Her accountant (I just do my own taxes) said that there isn't a whole lot to do about this, which I think is the consense on here. 

I agree that withholding probably doesn't make much sense since she's not on payroll, I just wish that there had been more of an obvious warning in the paperwork. I wasn't too involved with her finances when she got this originally and so didn't read the letter until this mess got to tax time. I'm a little more 'vigilant' about this sort of thing and I may have caught it but she certainly didn't and now we'll likely do a line of credit to pay it off.

She is going to write a letter as well, but it probably won't be a nice letter and it probably will end up in the garbage!

-Dave


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## ghostryder (Apr 5, 2009)

swoop_ds said:


> It's one thing getting 1000-4000 for a scholarship and then getting taxed at the end, but 20000?? That's a lot of taxable income. I highly doubt that my fiance was the only one who didn't realize that it was taxable. . .



Of all the people I know who received grants like this they all knew from the day they applied, since the info was in the application package.




swoop_ds said:


> In any event, this thread isn't about our lack of reading the buried information about this grant being taxable, it's about if there is anything we can do other than bend over to the government?



Do what? You received taxable income. You need to pay the tax you owe. End of story. Did you really think that the provincial government would give you $20,000 tax free? That's got to be somewhere between wishful thinking and willful blindness.


As for paying it back, as someone else pointed out the CRA rate is 5%, which isn't bad, unless you can get a LOC at a lower rate.


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## the-royal-mail (Dec 11, 2009)

I still think this is a really grey area. If the gov't comes up with a program to hand out money for something or other, it seems to me that the money should be tax free. I am reminded of that $200 that Mike Harris sent everyone about 10 years ago. That wasn't taxable.

What would be the point of the gov't sending out $x if it's taxable?

Talk to a real accountant about this. Do we have any of those here?


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## MoneyGal (Apr 24, 2009)

Not a real accountant. 

However, the issue is that sometimes money is disbursed to people by agencies and the recipients are not employees. So what does the agency call that money? I concur that "grant" is perhaps not the best choice...because it does have, in my opinion, a strong association with non-taxable income. But seriously, what term is better? It isn't a loan. Would "stipend" work? What about "taxable grant"? 

The issue, as I've said before, is that the issuing agency doesn't want to be responsible for calculating remittances on behalf of grant recipients. In addition, this income presumably does not qualify for EI and CPP contributions, as none were withheld by the issuing agency. 

I think the moral of the story is that when you receive income, you should figure out before tax time whether it's taxable or not. There isn't any way to retroactively make an RRSP contribution and have it apply to a previous year, so I suspect the OP('s wife) is SOL and she just needs to pay the tax bill. There's no quirk or exception an accountant will be able to find.


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## OhGreatGuru (May 24, 2009)

What box No. in the T4 was this included in?


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## ghostryder (Apr 5, 2009)

OhGreatGuru said:


> What box No. in the T4 was this included in?


It would have been a T4A with "other income".


These grants are paid by the Gov't of SK to people who agree to commit to work in remote or underserved rural areas for a specified length of time. This payment is separate from, and on top of the salary they receive from the Health Region they are working for.


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## OhGreatGuru (May 24, 2009)

I was hoping for an answer from the OP as to what the girlfriend actually received, not an informed opinion as to what it "would have been."


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## peterk (May 16, 2010)

You certainly would think that government grants would be tax free. I got a nice surprise a few months ago when I found out that the grant portion of my OSAP loan was taxable! Of course I'm a poor student so I never have to pay taxes anyways...


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