The Canada Revenue Agency has begun issuing formal collection letters for CERB repayment to recipients who may or may not have been eligible for the payments they received.
You may have received a letter from CRA regarding CERB payments to be paid back along one of two themes we’ve seen to date:
- You incorrectly received CERB payments from both Service Canada and the CRA
- You did not earn the minimum income required to qualify
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When it was rolled out, the Canada Emergency Response Benefit allowed Canadians whose employment was directly affected by COVID-19 to apply for benefits through Service Canada, or through the Canada Revenue Agency (CRA), but not both. CRA has issued a clear collection notice demanding repayment where someone has received payments through both portals.
To be eligible for CERB, you must have earned employment or self-employment income of at least $5,000 in 2019 or in the 12 months before applying.
To verify your income, CRA will look at your 2019 tax return, and any T4 or other income slips sent into the CRA.
If they cannot verify your income, you will receive a letter that states:
Based on the records we have at this time, we cannot confirm that you meet this requirement.
If you have earned income that meets the qualifications, and if you haven’t already done so, simply file your 2019 tax return.
Unfortunately, the rollout of CERB led to a lot of confusion as to income eligibility. The following income is not considered employment or self-employment income:
- Pension income
- Disability benefits
- Student loans and bursaries
- Family support payments
- Social assistance payments
- Employment Insurance (EI) earnings
- Canada Child Benefits (CCB) or Working Income Tax Benefit (WITB)
- Investment Income
Based on phone calls to our office, there may be a significant number of Canadians who collected CERB, assuming these forms of income qualified. Many were under the impression that if I cannot get a job due to COVID, I can collect CERB. However, technically that was not the case. For example, if you were on disability and did not return, you did not qualify for CERB.
CRA has also interpreted income guidelines to mean net income, not gross income, which has resulted in some self-employed workers receiving a notice of CERB repayment based on income levels. You may be able to file a T1 Adjustment form with the CRA to reduce expenses you claimed in 2019 until your net income exceeds $5,000. Talk to a tax accountant or tax lawyer to see if this is possible and review the numbers carefully. You will have to pay back taxes and possibly interest and penalties on this adjusted income, and this may impact your ability to deduct expenses in the future or trigger future audits for expense deductions.
How will CRA collect?
The CRA has strong collection powers. Currently, they seem to be taking a softer approach to the collection of CERB overpayments.
CRA is encouraging Canadians who were not eligible for benefits to repay CERB voluntarily. They understand that many may have made an honest mistake and appear to be waiving penalties and interest on overpayments – at least for now. And this assumes that you received CERB incorrectly through an honest error.
If you do not remit payment by December 31, 2020, CRA will issue a tax slip, which just means they say you owe that amount to CRA.
This means CRA can:
- keep any future tax refunds
- keep any benefits or credits, including CCB and WITB
To date, the CRA has not threatened stronger collection action, but that may change.
How a CERB overpayment will affect your future taxes
There is another complication if you need to repay your CERB but do not do so before December 31. Because CERB is taxable, any payments you receive in 2020 that you have not returned before December 31 will be included as income on your 2020 tax return. This means you will have to pay tax on the full amount of CERB you received in 2020. You won’t be eligible to get a ‘refund’ for this tax if you pay it back next year until you file your 2021 tax return – an entire year later.
What if you can’t repay CERB?
The Canada Revenue Agency has certainly indicated its intention to verify CERB benefits and claw back as much as possible where the recipient should not have received any payments. However, they have also indicated that they understand that many who applied incorrectly did so honestly.
We recognize that some people who applied may have later realized they were not eligible.
A bankruptcy or consumer proposal does erase government debts unless those debts arose due to fraud. It is our expectation that CRA will likely decide to accept CERB debt as dischargeable in a bankruptcy or consumer proposal based on the merits of each individual case.
If you have received a collection letter from the CRA, you have three options:
- Pay in full: If you can afford to, CRA is requesting that you repay any amounts before December 31 to avoid having your next year’s tax refund affected. You can pay online, through your CRA My Account or by mail. Make sure to indicate or choose options that your payment is for ‘repayment of CERB’.
- Make repayment arrangements: If you need more time to repay but can afford to pay the full amount, talk with a CRA agent to arrange a repayment plan. You can contact CRA at 1-833-966-2099.
- Consider a bankruptcy or consumer proposal: If you cannot afford to repay the full amount, talk with a Licensed Insolvency Trustee about your specific situation to determine if a bankruptcy or proposal can help.