Income Limits Could Mean You Have to Repay Canada Recovery Benefits

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In the early days of the pandemic, the federal government launched the Canada Emergency Response Benefit to support Canadians affected by the pandemic. It supported almost 9 million Canadian applicants at one point or another. The benefit wrapped up in December 2020, and the majority of people who had received CERB transitioned to EI.

However, not all Canadians who received CERB qualify for EI. The government introduced a new income support in the form of the Canada Recovery Benefit (CRB) aimed at employees who could not qualify for traditional Employment Insurance earnings, including self-employed workers and gig workers.

In addition to the shift to EI and CRB, check for other CERB updates if you have received the benefit or you’re worried that you might have to repay part of it.

How Much Does CRB Pay?

The CRB in Canada initially paid out $500 per week (or $1,000 per two-week benefit period), but as of August 2021, the government reduced those payments to $300 per week for first-time applicants applying after July 18 and those who have already received the benefit for 21 periods. The reduction came alongside high vaccination rates and signs that the economy was recovering. As the government looks to curtail many of the broad stimulus measures it enacted to respond to extraordinary circumstances, it’s now winding down income supports.

CRB Eligibility Requirements

Who can apply for CRB? In order to apply, you need to meet the following CRB requirements:

  • You were not employed or self-employed as a result of the COVID-19 pandemic and related lockdowns.
  • Your average weekly income was reduced by 50% or more due to COVID-19.
  • You are not eligible to receive EI.
  • You earned at least $5,000 in 2019, 2020 or the previous 12 months before the date you applied.
  • You did not quit your job or take fewer hours voluntarily.
  • You are not applying for a period in which you went into quarantine after international travel.
  • You did not turn down reasonable work during the period of your application.

How to Apply for CRB?

In order to apply for CRB in Canada, you need to:

  • File your income taxes for 2019 and 2020.
  • Set up direct deposit with the CRA.
  • Apply through your online CRA account or by phone.

When Does CRB End?

The Canadian government is winding down income supports related to COVID-19. If you are looking into CRB eligibility, you should know that the benefit ends on September 25, 2021. However, if your employment is still impacted as a result of COVID-19, the benefit is still available in two-week periods.

CRB Impact on Your Taxes

Unlike EI, CERB was not taxed at the source, meaning recipients had to plan ahead and set part of the benefit aside to be repaid later. Unfortunately, not everyone who received the benefit knew that they would have to pay part of it back when they filed their taxes, and some had little choice but to use all of the money to cover their immediate expenses.

Find out more about CERB and your taxes if you’re worried about paying back the CRA or you’re not sure how much you could owe next year. You can start by making an estimate of your taxable income for the year 2021 and use an income tax calculator to get a rough estimate of how much you might owe. If you’re already dealing with a CRA tax bill that you can’t afford, talk to a Licensed Insolvency Trustee about dealing with debt.

CRB, on the other hand, is taxed at a rate of 10% at the source. Under the original $1,000-per-period benefit, you would receive $900. Under the new $600-per-period benefit, you would receive $540.

However, that may not be the rate at which your income is taxed in the end. Depending on how much you worked or will work in the calendar year, you can expect an adjustment. When it comes to CRB and income taxes, you may want to budget as much as 20% of your payments for taxes if possible.

Income Limits on CRB

For many employees, work has been intermittent throughout 2020 and 2021. Not everyone has been out of work the entire time, and some, like restaurant and hospitality workers, have been in and out of work depending on regional and provincial restrictions.

You don’t have to have been out of work for the entire year to receive the Canada Recovery Benefit. However, if you earned more than $38,000 in net income in the same year that you received CRB payments, there is a clawback mechanism.

You will have to repay $0.50 for every dollar above $38,000 you earned in net income for the calendar year, up to the amount of CRB that you received. For example, you collected $4,000 in 2021 but went back to work and earned a net $40,000 from your job in the same year. Since your net income is $2,000 over the income threshold and you have to repay an amount equal to 50% of your income over the limit, you would owe the CRA $1,000.

How to Pay CRA Debts

Clawbacks and taxes on benefits are why budgeting for taxes during COVID-19 is essential for your personal financial recovery. The income supports that the government rolled out helped many Canadians avoid debt while paying for their basic expenses, but now you have to manage your finances to make sure you don’t wind up owing money to the CRA after the fact.

There are tips you can use to help prepare for tax time next year:

#1 Avoid Impulse Spending

It has been a difficult year and a half, and as restrictions ease and things reopen, impulse spending will be very hard to avoid. The phenomenon is even being called revenge spending because our outlets for the past year and a half have been so limited. One way to restrict this kind of spending is giving yourself a “cheat limit” – a fixed amount every month that you can spend freely on the things you’ve missed, but keep to that limit strictly.

#2 Create a Detailed Budget

Tracking your monthly expenses and making a plan for how to spend your money will go a long way toward preparing you for tax time. When money’s tight, it can be hard to make sure you hold onto cash that you expect you will have to give back to the CRA. That’s why you need to stick to your budget rather than basing your decisions on how much money you have in your account presently. You can get budgeting help through credit counselling in Ontario.

#3 Work with a Licensed Insolvency Trustee

If you do wind up owing the CRA money, that debt can be discharged in bankruptcy or a consumer proposal. Insolvency is an option you might want to consider if the CRA adds to the debt you already owe, such as credit cards or lines of credit that you may have relied on to get through the pandemic. Finding out that you have to pay back income benefits when you’re already drowning in debt can feel like a slap to the face.

Talk to David Sklar & Associates about what you can do. They will start with a free consultation where they look at your financial situation, including what you owe, your assets, income, and expenses, then advise you on the best way forward.

Avoid These Tax Mistakes

Budgeting alone may not be enough to protect you from a steep bill when it comes time to file your taxes. When you file, make sure you avoid these tax mistakes that can make the situation worse.

#1 Fail to Report Income Supports

Benefits like CERB and CRB must be reported. As a general rule, all of your earnings, including these benefits and income from a side job (such as driving for Uber or selling crafts online), must be reported to the CRA. You can still be taxed on that income, even if you don’t report it.

#2 Miss the Deadline

You can file your tax returns at any time – even years later. If you owe nothing or the CRA owes you a refund, there are no consequences. But when you owe the CRA, you’re charged a 5% penalty for filing late (the base rate, which goes up with interest rates, plus four percent). Compounding daily, it can quickly become expensive.

#3 Ignore the Debt

The CRA has extensive authority to collect money that you owe them, including garnishing your wages and your bank account. If you ignore what you owe, the CRA may simply take whatever they can, leaving you in an even more precarious situation. It’s always better to be proactive, whether you contact the CRA about a repayment plan or talk to a Licensed Insolvency Trustee about a consumer proposal.

If you owe money to the CRA because of CRB clawback payments, and you can’t afford those payments, talk to a Licensed Insolvency Trustee about your options.

Take Your First Step Towards A Debt Free Life

If you are overwhelmed by debt and live in the Toronto area, call us at 416-498-9200 to book a FREE, confidential appointment. We will review your financial situation in detail and discuss all of your options with you. Alternatively, you can fill out the form below and our team will reach out to you. 

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