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. For many, this may be the first time they’ve ever had to pay a tax bill.
Even more worrisome is the fact that some Canadians received CERB but were not eligible, meaning that they will 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. Approximately 441,000 Canadians received a collection letter from the CRA outlining the need to return some (or all) of their CERB benefits.
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.
Luckily, after receiving much criticism, the federal government announced that self-employed individuals who applied for CERB and would have qualified based on their gross income will not be required to repay the benefit, provided they also met all other eligibility requirements.
This is a U-turn from the CRA’s initial statement, which was that there would be no amnesty for ineligible self-employed Canadians, despite poor communication from the government about eligibility requirements.
Furthermore, CRA and Service Canada will return any repaid CERB payments to self-employed individuals whose net self-employment income was less than $5,000 and who have already voluntarily repaid their CERB payments.
With tax season around the corner, many self-employed individuals can breathe a sigh of relief that they won’t owe as much as they thought. However, that’s not to say that there won’t be any taxes owed.
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, meaning that no tax was deducted from the payment before going into the recipient’s bank account.
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. Some Canadians may owe upwards of 30 per cent – totalling $5,400 on an $18,000 CERB claim.
How to Repay the CRA
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 government has recently announced that it will provide interest relief to Canadians who received COVID-related income support benefits. This means that once individuals have filed their 2020 income tax and benefit return, they will not be required to pay interest on any outstanding income tax debt for the 2020 tax year until April 30, 2022.
To qualify for targeted interest relief, individuals must have had a taxable income of $75,000 or less in 2020 and have received income support in 2020 through one of the COVID-19 benefits.
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 start saving now so that you’ve able to pay your bill come 2022.
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.