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When the Canada Emergency Response Benefit (CERB) was initially introduced, there was a lot of confusion and missing information. The emergency benefit was rolled out to help workers suddenly laid off due to pandemic shutdowns across the country, and the government acted with urgency 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 applications process.
That meant that mistakes were made, and many people later discovered that they were ineligible 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’re expected to make a CRA CERB repayment can be frustrating and intimidating. Whether they were eligible or not, many Canadians relied on that money to pay for essentials during the pandemic.
If you have received a letter of repayment and you can’t afford to return that money, get in touch with David Sklar & Associates. A Licensed Insolvency Trustee can give you information about bankruptcy or consumer proposals to discharge that debt.
First, let’s look at why you might have been found ineligible for CERB, how you can prove you were eligible if you don’t believe it was a mistake, and how to return CERB payments to the CRA if you can afford to.
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, and COVID-19 had to be the main reason they had to stop work or work reduced hours.
The CRA chose to take applicants’ word for it so that they could expedite getting money into pockets and only later began to review applicants’ eligibility. There were many cases where money was sent to ineligible applicants. 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 frequent reasons.
When it was initially rolled out, you could apply for CERB either 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 payment for the same time period would have to pay back CERB, but only the CERB overpayment amount.
Another important eligibility requirement was how much money you earned in the previous 12 months before applying or in the year 2019. Applicants had to have earned at least $5,000 in either of those time periods.
As it began the long process of verifying applications, the CRA began to look at 2019 tax returns to see who needs to make CERB paybacks.
Some applicants earned that amount but have not yet filed their 2019 tax returns, and the CRA could not verify their income. If that’s the case for you, the best way to proceed is to file your 2019 tax return as quickly as possible.
A number of sources of income are not considered employment or self-employment income and cannot be counted toward CERB eligibility:
- 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 toward their income when they applied are now discovering that they did not qualify and are now struggling with paying back CERB. Many applicants who relied on these sources of income are not in a position to make CERB repayments and are now looking for ways to deal with the Canada Revenue Agency.
Updates to Self-Employment Income Requirements
Since the rollout, the CRA has issued some important updates about CERB that have changed eligibility requirements retroactively.
One of the most important is how the CRA decided to calculate self-employment income. Initially, the CRA said that applicants had to have earned $5,000 in net income rather than gross income. Gross income is how much you earned before claiming deductions, while net is your taxable income after those deductions have been made.
If you are self-employed, there are a number of business expenses you can deduct to reduce your tax bill. Many applicants whose income was later deemed insufficient were left with no choice but to make CERB repayments or file an adjustment to their 2019 tax return. Either option would involve owing the CRA.
However, due to an initial miscommunication and public backlash, the CRA reversed its policy and announced that individuals who earned $5,000 in gross self-employed income qualified. Although they may have received a CERB repayment letter, they are no longer required to return the benefit.
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 payment by cheque, money order, or through online banking.
When you make a CERB repayment, you can deduct the amount from your income when you file your taxes for the year that the benefit was received. Because it’s a taxable benefit, this can save you from the potentially harsh penalty of having to pay taxes on a benefit that you ultimately had to return.
Is There a CRA CERB Extension?
The deadline for CERB repayments is the same as the tax deadline for the year in which you received the benefit. April 30, 2021, is the deadline for paying your taxes, and the government did not provide an extension. If you still haven’t filed your taxes or paid taxes (or repayments) owing, you still can. Penalties for late payments continue to accrue whether you have filed your taxes or not, so it is always better to file and find out what you owe.
Paying Taxes on CERB
Since it was announced, the CRA has made it clear that CERB is taxable income. Whereas EI (Employment Income) is taxed at the source, when it comes to CERB and your taxes, you’re expected to repay a portion of the benefit that 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 make sure they were covered at tax time.
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 pandemic lockdowns and periods of unemployment, many Canadians didn’t have much in the way of options. They could pay their bills, keep up with rent, and pay for groceries, or they could save 20 percent of their emergency benefit. Many dealt with the problems right in front of them and hoped they would be in a better financial position when their tax bill was due, leaving them with debt.
Unfortunately, many also relied on credit cards and other forms of debt to get by. There is no denying that COVID-19’s impacts on household debt have been burdensome for thousands of Canadians. Now that relief programs and benefits are winding down they’re still stuck with debt bills that can be difficult to repay even if they’ve gone back to work.
How Can the CRA Collect Debt?
The CRA has extensive powers to collect when you owe them money, far more than other creditors. While other creditors may be limited to collection calls unless they successfully get a judgment to take further action, 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 or going to court.
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 where an honest mistake has been made, for now. You can also contact the CRA and work out a payment plan if you cannot afford to pay it all back at once.
Dealing with COVID-19 Debt
COVID-19 has left thousands of Canadians with overwhelming debt. Even as the world reopens and people get back to work, it’s not always easy or possible to pay it back.
A Licensed Insolvency Trustee can guide you through your options for dealing with that debt. Debt to the CRA can be discharged through bankruptcy or a consumer proposal unless those debts were incurred by fraud. Honest debtors can get out of debt if they can’t afford to pay it back.