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There was much joy and relief when the federal government introduced the Canada Emergency Response Benefit (CERB). But there was also plenty of confusion and fuzzy details about how the program worked.
The goal of CERB was to provide financial assistance to Canadians during the COVID-19 pandemic. The government acted quickly to get money into Canadians’ pockets so that they could cover their bills. Over 3 million Canadians applied on the first day alone, despite the lack of clarity about eligibility and the application process.
As a result, mistakes were made, resulting in many people discovering they were ineligible for the program after receiving payments.
If this has happened to you, you may have received a letter of repayment from the CRA, expecting you to return the CERB payments you received.
Finding out that you must repay all or a portion of your CERB funds can be frustrating and intimidating. Whether you were eligible or not, you relied on the money to pay for your living costs during the pandemic.
If you have received a CERB repayment letter and cannot afford to return the money, get in touch with David Sklar & Associates. A Licensed Insolvency Trustee can inform you about options for filing bankruptcy or a consumer proposal to discharge the debt.
In this article, we’ll explain:
- Why you might have been found ineligible for CERB
- How to dispute the CRA’s claim that you failed to meet the CERB qualification requirements
- How to return your CERB payments to the CRA if you can afford to do so
- Your options for dealing with CERB debt if you’re unable to repay the amount owed
Reasons for CERB Repayment
To be eligible for the $2,000 monthly CERB payment, applicants had to have earned a minimum of $5,000 in the last 12 months before applying (or in 2019) from employment or self-employment income. In addition, COVID-19 had to be the main reason they stopped working or worked reduced hours.
The CRA relied on the applicants’ word
s to get money into pockets quickly and only later began to review who was eligible and who was not. Shortly, cases began springing up where money was sent to individuals who were not entitled to receive it.
Now that the CRA is reviewing applications and comparing them with 2019 tax returns, some Canadians are receiving CERB repayment letters. Below are the two most common reasons why you may have received one.
Individuals could apply for CERB through the Canada Revenue Agency (CRA) or Service Canada. Some mistakenly applied through both and received double payments. The CRA has made it clear that applicants who received double payments would have to pay back CERB, but only the overpayment amount.
To be eligible for CERB, an applicant must have earned at least $5,000 in either:
- The previous 12 months before applying, or
- in the year 2019
As the long process of verifying applications began, the CRA started to look at 2019 tax returns to determine who needed to make CERB repayments.
Some applicants who met this income requirement have not filed their 2019 tax returns, and the CRA could not verify their income. If that’s the case for you, ensure you file your 2019 (or later) tax return as quickly as possible so that you have proof of your eligibility.
The CRA doesn’t consider money received from the following sources a form of employment or self-employment income:
- Student loans
- Social assistance
- EI earnings
- Income from a pension
- Disability benefits
- Income from investments
- Working Income Tax Benefits or Canada Child Benefits
Applicants who counted these sources as part of their income when they applied learned that they did not qualify for CERB. As a result, some are now struggling to repay what they received, especially those who relied on CERB to cover their living costs and are still jobless.
Updates to Self-Employment Income Requirements
Since the rollout, the CRA has issued some crucial updates about CERB that have changed eligibility requirements retroactively. A notable change is the determination of self-employment income.
Initially, the CRA said applicants had to earn $5,000 in net income rather than gross income. Gross income refers to earnings before expenses, while net income is income for tax purposes once all costs have been deducted.
Unfortunately, some self-employed individuals confused the former for the latter.
And when the CRA assessed their income to determine whether they qualified for CERB, it found that they failed to meet the $5,000 threshold.
As a result, these individuals had no choice but to make CERB repayments or file an adjustment to their 2019 tax return. Either option would leave them owing money to the CRA.
However, due to an initial miscommunication and public backlash, the CRA reversed its policy and announced that those who reported earning $5,000 in gross self-employed income would qualify. Although they may have received a CERB repayment letter, the CRA no longer requires them to return the benefit payments.
What’s the CERB repayment deadline?
Currently, there’s no repayment deadline for CERB overpayments. The federal government, for now, has committed to being flexible, providing individuals with ample time to make their payments.
How to Make Your CERB Repayment
If you need to return a CERB overpayment, it should be repaid to the agency that you applied to. You can return funds to the Canada Revenue Agency by signing into your CRA Account, writing a cheque or money order to the agency, or through online banking with your financial institution.
If you applied through Service Canada, which also handles Employment Insurance, you can return the funds by cheque, money order, or through online banking.
Paying Taxes on CERB
CERB is taxable income. Whereas EI (Employment Income) is taxed at the source, when it comes to CERB and your taxes, you must repay a portion of the benefit you received.
There are a lot of variables in determining how much any individual will have to pay in taxes. But most people’s effective tax rate is between 15 and 25 percent. Tax advisors recommended setting aside 20 percent of the benefit to repay during tax season.
But for many recipients of CERB, holding onto that extra money wasn’t possible at the time, or they didn’t know that they should. During the lockdowns and periods of unemployment, many Canadians had to compromise. They could pay their bills, keep up with rent, and pay for groceries, or save 20 percent of their emergency benefit. Many dealt with the immediate problems, hoping they would be in a better financial position when their tax bill was due.
There’s no denying that COVID-19’s impacts on household debt have been burdensome for thousands of Canadians. And now that relief programs and benefits are winding down, they’re still stuck with debt that can be difficult to repay, even if they’ve returned to work.
Applying CERB repayments on your tax return
When you return your CERB payments, how you claim the amount from your income when you file your taxes will depend on the year you made your repayment:
- Repayment made in 2020: subtract the amount you repaid from the CERB payments you received in 2020.
- Repayment made in 2021: deduct the amount you repaid on either your 2020 or 2021 tax return or split the deduction between both years.
- Repayment made in 2022: deduct the amount you repaid on your 2020, 2021, or 2022 tax return or split the deduction across all three tax years.
- Repayment made after 2022: only deduct the amount repaid in the year in which you make the repayment.
How can the CRA collect unpaid CERB debt?
The CRA has extensive debt collection powers compared to the average creditor.
In general, creditors are limited to collection calls unless they can successfully get a court order to take further action. However, the CRA can keep your future tax returns, withhold benefits or credits, and even freeze your bank account or garnish your wages without notifying you. They also don’t need to receive a judgment from the court to take these steps.
However, the CRA has, so far, shown its willingness to give Canadians the benefit of the doubt when it comes to CERB overpayments. The CRA is waiving penalties and interest on CERB overpayments in cases the applicant has made an honest mistake.
What if you cannot afford to repay CERB?
Depending on your financial situation, you may be able to repay your CERB debt immediately. If that’s the case, you should contact the CRA to see if you can work out a payment arrangement suitable for your budget.
However, let’s say your finances are in dire straits, and you foresee no way of returning your CERB payments. In this scenario, you may want to consider a consumer proposal or bankruptcy to eliminate your payment obligations.
In March 2022, the Office of the Superintendent of Bankruptcy released a statement noting that “erroneous or overpayment of CERB is a releasable debt in the event of insolvency.” In other words, you can legally discharge your CERB debt by filing for bankruptcy or a consumer proposal.
Remember that CERB payments received fraudulently cannot be discharged through an insolvency proceeding. You must have applied for and received CERB payments because you honestly believed, at the time, that you were eligible to enroll in the program.
Dealing with COVID-19 Debt
COVID-19 has left thousands of Canadians with overwhelming debt. Even as the world reopens and people return to work, keeping up with payments can be challenging, whether a bank loan or a government debt like a CERB overpayment.
A Licensed Insolvency Trustee can guide you through your options for dealing with money you owe to the CRA. You can discharge these debts through bankruptcy, or a consumer proposal, as long as they didn’t arise from fraud. Honest debtors can get out of debt if they can’t afford to pay it back.