06/01/2021Repayment of CERB – Everything you need to know
Many Canadians have begun receiving notices from the Canada Revenue Agency (CRA), stating that they may have not been eligible for the Canadian Emergency Recovery Benefit (CERB).
As of writing this post, the notices being sent to Canadian’s state that you may not have been eligible for the CERB benefit because:
- You incorrectly received CERB payments from both Service Canada and the CRA
- You did not earn the minimum income required to qualify
Although these notices are formal and very intimidating, there is no need to panic! Read below for more information.
Service Canada Vs. CRA
When CERB was first introduced, many Canadian’s were confused by where to apply. Until things were clarified, there was an opportunity to apply through Service Canada, and the CRA, both simultaneously and individually. As a result of there being no act
ive analysis, anyone that applied to both places at one time, would have received double the benefit they were entitled to.
If you fall into this category, you certainly owe repayment of the dou
bled CERB you received.
The CRA did not actively review your income prior to approving you for the CERB benefit. This was done to allow the easiest and quickest access to funds during the COVID-19 pandemic.
The CRA stated that in order to be eligible for the CERB benefit, the tax payer must have earned a minimum of $5000 in 2019 or within the 12 months’ prior to apply for the benefit. Now that the benefit has ceased, the CRA is looking through their system at any T4s on file (showing your 12 months’ prior income) and your 2019 tax return (assuming you filed it).
In many cases, they are unable to verify your income and therefore you may have received the notice of stating that you are required to prove income or return the benefit.
The letter from CRA is as follows:
Based on the records we have at this time, we cannot confirm that you meet this requirement.
If you have earned income that meets the qualifications, and if you haven’t already done so, simply file your 2019 tax return.
Unfortunately, the rollout of CERB led to a lot of confusion as to income eligibility. The following income is not considered employment or self-employment income:
- Pension income
- Disability benefits
- Student loans and bursaries
- Family support payments
- Social assistance payments
- Employment Insurance (EI) earnings
- Canada Child Benefits (CCB) or Working Income Tax Benefit (WITB)
- Investment Income
Based on phone calls to our office, there may be a significant number of Canadians who collected CERB, assuming these forms of income qualified. Many were under the impression that if I cannot get a job due to COVID, I can collect CERB. However, technically that was not the case. For example, if you were on disability and did not return, you did not qualify for CERB.
CRA has also interpreted income guidelines to mean net income, not gross income, which has resulted in some self-employed workers receiving a notice of CERB repayment based on income levels. You may be able to file a T1 Adjustment form with the CRA to reduce expenses you claimed in 2019 until your net income exceeds $5,000. Talk to a tax accountant or tax lawyer to see if this is possible and review the numbers carefully. You will have to pay back taxes and possibly interest and penalties on this adjusted income, and this may impact your ability to deduct expenses in the future or trigger future audits for expense deductions.
The Canadian government and the CRA understand that for many Canadian’s the pandemic is still not over. Many remain ill, or without work. As such, the CRA is not applying the full force of their collection efforts in regard to the pandemic benefit. This is not to say that they will not use their full powers in the future.
We, and CRA, encourage you to repay your CERB overpayment if you received the benefit in error. They are providing you until the end of 2021 (December 31) to pay back, or prove that you were eligible for the benefit. If you fail to do so, the debt will be added to your income tax bill. This is to say, the CRA will consider CERB as fully taxable income, in addition to you owing the money back.
When income tax is owed to the CRA, they will withhold your income tax refunds and any other benefits, including Canada Child Benefit, until they have been paid back in full. They also charge 6% annual interest, compounded daily!
Can’t repay CERB?
Like any other income tax debt, bankruptcy and consumer proposal can erase government debts unless those debts arose due to fraud.
There has been no indication that the CRA will consider ineligible CERB claims as fraudulent and therefore, we suspect it will be fully dischargeable.
If you have received a collection letter from the CRA, you have the following options:
- Prove your eligibility: First and foremost, try to prove you are eligible. Provide the CRA with whatever information you have requested to prove that you do not owe any repayment.
- Pay in full: Contact the CRA via their online web portal or by telephone or mail to arrange to pay back the CERB benefit in full prior to December 31, 2021.
Consider a bankruptcy or consumer proposal: speak with one of our licensed insolvency trustees to reduce your debts, including the CERB repayment benefit.