If you took advantage of the Canadian Emergency Response Benefits (CERB) in 2020, you need to immediately take several steps to protect yourself from a fraud accusation and an unexpected tax bill.
During the pandemic, the Canadian government made emergency funds available to millions of people. The government doled out funds to the public with little to no validation of eligibility, emphasizing the issuance of emergency benefits to those who needed it as quickly as possible; they would ask questions later. To complicate matters, the criteria for eligibility lacked clarity, with the unintended effect of many citizens innocently accepting the aid without realizing they didn’t actually meet the qualifications. The government also issued checks without withholding any taxes, instead deferring tax payments until later.
Now, later has arrived, and the Canadian Revenue Agency (CRA) is rolling up its sleeves to investigate the claims. The agency will demand the money back from all who received the benefit without meeting the qualifications. The CRA is also requiring Canadians to pay taxes on what was issued. Countless citizens will be surprised to learn they owe income tax on the emergency relief funds they received.
If you received the benefit, you need to take two steps today.
Step 1: Review the eligibility criteria to determine if you were entitled to receive them.
To be eligible for the $2,000 CERB payment, you must have met the following conditions during the period you were applying for:
- You did not apply for, nor receive, CERB or EI benefits from Service Canada for the same eligibility period.
- You did not quit your job voluntarily.
- You resided in Canada and were at least 15 years old.
- You earned a minimum of $5,000 (before taxes) in the last 12 months, or in 2019, from one or more of the following sources:
- employment income
- self-employment income
- provincial benefit payments related to maternity or parental leave
Also, you must prove that COVID-19 caused your income for one of four reasons:
- You stopped working because of COVID-19.
- You were unable to work due to COVID-19, such as because you were taking care of someone.
- You were paid EI regular or fishing benefits for at least one week of benefits since Dec. 29, 2019, and you used up your entitlement to those benefits
- Your work hours were reduced because of COVID-19. If this is your situation, you must also check your situation against two more criteria:
- If you were applying for the first time: You stopped working, or you were working reduced hours due to COVID-19, and you didn’t expect to earn over $1,000 in employment or self-employment income (before deductions) for at least 14 days in a row during the 4-week period.
- If you were applying for a subsequent period: You were still not working, or you were working reduced hours due to COVID-19 and didn’t expect to earn over $1,000 in employment or self-employment income (before deductions), and you expected this to continue during the entire 4-week period.
The $1,000 income you could have earned includes tips, dividends, honorariums, and some royalties. What doesn’t count toward income includes pensions, student loans, and bursaries.
Step 2: Meet with a good tax accountant to strategize a plan for minimizing your taxes and maximizing your benefits.
If you’re unsure of your situation or discover that you didn’t qualify, then definitely make an appointment with a tax accountant now to strategize your response before the CRA comes knocking at your door. Believe me, you don’t want to face the CRA without first consulting a highly-qualified tax professional for their advice.
If you found that you qualified for the benefits, congratulations, but you’re not out of the financial woods yet. Whether or not you met the qualifications for the CRB, you now owe income taxes on any money you accepted. Remember, the government issued the money without any tax deductions. Now, the CRA wants its share of what you received. The good news is there may be ways to offset this tax exposure. The options available are highly individualized, so again, I strongly suggest you meet with a tax expert today to determine how to reduce your burden.
Finally, if you still need a little help getting through this crisis, rest assured that relief programs are still available. The government has changed the criteria slightly. For example, if you travelled internationally recently, you won’t be eligible. This time, before you apply, make sure you meet the criteria before you accept the aid.
The CRB application is open. You can carefully review the qualifications and apply.
If you need guidance on benefit programs, how to reduce your taxes or other financial concerns, don’t hesitate to connect with us at CleveDoesMore