Amid the Covid-19 pandemic, the Canada Revenue Agency (CRA) has dispersed millions of dollars to Canadians under the Canada Emergency Response Benefit (CERB). But the CRA has now sent over 441,000 “educational” letters to Canadians who may have to pay back CERB payments.
The CRA has claimed that up to 213,000 Canadians may have received CERB payments erroneously. Many of them are now expected to repay up to $14,000 back to the government, on relatively short notice.
While the CRA is being lenient with regards to the timing of CERB repayments, they’ve stated they need the money back no later than December 31, 2020 to avoid tax consequences. This has left many people understandably worried and confused. So, let’s go over the reasons many Canadians may now owe the CERB. Then we will have a look at what you can do if you have been told you owe the CRA but can’t afford to pay them back.
Why You May Owe the CRA
There are several causes for the repayment demands being made by the CRA. Many Canadians claimed the benefit under the self-employed status for 2019 without meeting the $5,000 net income requirement. Net income is your total gross income minus your expenses. So, it’s possible to earn $5,000 in gross income but still fall short of the CERB requirement.
In other cases, some Canadian’s who received CERB benefits were not entitled because they made too much money or were receiving money from other government programs. These people are also now being told to pay some or all of the CERB money back to the government. This often happened when CERB recipients received separate payments from both the CERB and Service Canada, for example.
Do I Have to Repay My CERB Payment?
If the above situations apply to you, you may be one of the 213,000 Canadians that now owe the CRA money.
If you’ve received a CRA repayment letter you should review your situation and determine if you agree with the government’s assessment. If you disagree, you need to respond and discuss your situation with a CRA agent because if you cannot successfully justify why you qualified to receive CERB, then the CRA will start initiating a collection process.
If you didn’t qualify and you owe the CERB repayment then there is little you can do. Overall, it is recommended that you pay your benefits back or contact CRA to arrange a repayment plan. If you think the CRA is making a mistake, you may challenge their decision. But absent of proof of your eligibility, your chances of successfully challenging the CRA over CERB repayments may be slim.
To avoid potentially negative implications on your 2020 T4 tax returns, the CRA suggested the CERB benefits received be repaid before December 31st, 2020. For most Canadian’s contacted by the CRA about CERB repayments, paying the balance before the December 31, 2020 deadline was not possible. The CRA has stated its willingness to work with taxpayers to come to a workable repayment schedule. In addition to the government’s willingness to make a flexible repayment schedule, the government has also promised that individuals who made an honest mistake will not be penalized with interest charges or extra fees.
How Can I Avoid Having to Repay CERB?
As stated, challenging the CRA’s decision asserting a CERB overpayment or ineligibility doesn’t typically result in the CRA agreeing unless you can provide proof of your eligibility. However, if you acted honestly and have valid reasons to present there might be acceptable arguments to avoid having to pay some or all of the CERB repayments, such as if your net income was just short of the required $5,000 cut off. If CRA is not willing to accept your arguments then you should explore other options such as those outlined below.
If you declared that you met the $5,000 net income requirement and are being asked to repay, it is possible to file a T1 adjustment form with CRA to adjust your 2019 returns. It is important to be honest and report all your income accurately, but with such a low net income, claiming every deduction might be a disservice, because it could lower your net income below the $5,000 limit required to be eligible for CERB. You don’t need to claim every deduction you’re entitled to.
You can reduce the deductions you claimed. If you legally reduce your 2019 tax expenses, your net income will go up, which will mean:
- You will have to pay the extra taxes for the tax year of 2019
- If your net income goes up to $5,000, you won’t need to pay back your CERB payments
Paying more taxes for 2019 than you planned to isn’t great. But it’s a tiny inconvenience when compared to a $14,000 CERB repayment.
CERB Tax Implications
The CERB payments you receive are taxable. The amount you receive must be claimed on your 2020 tax return and will be included on your T4A tax information slip.
If you received CERB payments but received a letter advising that you’re ineligible, the government asked that the CERB benefits be repaid by the end of year 2020 to avoid a higher tax bill for the 2020 tax year. Any amount that was repaid before the end of 2020 will automatically be reduced from your T4A for your 2020 taxes.
If you end up owing the CERB benefits but can’t afford a repayment plan and can provide evidence of ongoing financial hardship, you may be able to apply for CRA taxpayer relief provisions. That may grant you relief from penalties and interest while the debt is being reclaimed through other benefits, such as GST/HST payments. To understand these options or other options specifically available based on your individual circumstances we recommend you speak with your accountant.
I Can’t Afford CERB Repayments
Unfortunately, many people reading this applied for the CERB benefits believing they qualified and the benefits were received and spent. These same people are now being told they didn’t qualify and need to pay the benefits back to the government. For those that couldn’t pay the CERB benefits back, in full, before the end of the year, the government is still willing to make reasonable payment arrangements to accommodate the repayment of this debt. To make a repayment arrangement with CRA please call: 1-866-864-5823
If you still don’t think you’ll be able to satisfy a repayment arrangement, you can talk with a Licensed Insolvency Trustee about your options. Your LIT will go over all your debt relief options to help you choose the best course of action.