At the start of the pandemic, many Canadians were quick to register for the Canadian Emergency Response Benefit (CERB). The federal government’s $2,000-a-month payment was simple to apply for and came with minimal eligibility requirements.
The benefit was initially created to help workers and businesses navigate the financial impact of COVID-19. However, many CERB recipients now face new financial hurdles. Being a taxable benefit, claimants will owe hundreds if not thousands of dollars to the Canada Revenue Agency (CRA) during the upcoming tax season.
Even more worrisome is the fact that some Canadians received CERB but were not eligible, meaning that they owe the full amount received back to the CRA.
The income eligibility requirement for CERB was a minimum of $5,000 (before taxes) during 2019 or the 12 months before applying. The sources that could be used were employment income, self-employment income, and provincial benefit payments related to maternity or parental leave.
If the CRA could not verify a CERB recipient’s income, the claimant will have received a collection letter.
“We’ve started to see the CRA issue letters to recipients saying that they were ineligible and now have to pay back the full amount – ideally December 31– to avoid having to include it as income on their 2020 taxes,” says John Eisner, President & CEO of Credit Counselling Services of Atlantic Canada. “Obviously receiving a letter like this, with the holidays just around the corner, is extremely stressful for many. People are confused by the government’s eligibility requirements, particularly the self-employed, with many saying they thought they were eligible.”
For many self-employed Canadians, the letter from the CRA was the first time they were made aware that CERB eligibility was based on “net” self-employment income, meaning after expenses, and not “gross” income. Many have said that this wasn’t properly clarified in legislation, on government web pages or by CRA employees.
Eisner suggests self-employed people who have received this letter reach out to their accountant as soon as possible to see if there’s a way to adjust their net income on their previous tax return. He also advises they take it one step further by contacting their local MP to voice their concerns.
“There appears to be a major gap in the wording of this program, which is obviously very concerning to the thousands of Canadians that utilized this program.”
Even if you’re not self-employed, you still may owe money.
CERB: A Taxable Benefit
CERB was used as a lifeline by millions of Canadians to pay bills and buy groceries – but some recipients failed to recognize its impact come tax time. Like any other income during 2020, CERB payments are considered taxable income.
When the benefit amount was initially given to Canadians, no tax was deducted. CERB recipients can expect to receive a tax slip outlining the income amount they will need to include on their 2020 tax return. The amount of tax that needs to be paid back depends on if any other income was collected during 2020 and if there are any applicable deductions and tax credits.
How to Repay the CRA
Approximately 441,000 Canadians received a collection letter from the CRA outlining the need to return some (or all) of their CERB benefits.
Repayment of CERB benefits in full can be made online, through the CRA My Account, or by mail. If the total amount cannot be paid, CRA agents can set up a repayment plan. If someone is still unable to repay the full amount, a credit counselling debt management program another option.
The CRA has suspended new debt collection for the duration of the pandemic. In the future, these collection measures could include keeping any tax refunds, benefits, and credits and garnishing wages.
What If You Can’t Pay Back the CERB?
The CRA has great powers to make you pay back any owed income tax. They can seize your bank account, garnish your wages and may even register a lien on your home. Therefore, it’s extremely important to explore all available options to pay this money back to the government.
The government has said while there will be no amnesty for CERB repayments, they will be flexible with repayment. It is recommended you contact them to see what repayment options are available. Oftentimes, you can pay back the money on an instalment plan.
If you need assistance on how to repay your CERB overpayment, our experienced credit counsellors can help you review your options and design a suitable debt repayment plan. Contact us today for a free consultation.