TORONTO – Some Canadians who have applied for Canada Emergency Response Benefit (CERB) are asked to refund their full amount by December 31 because of one word that was never in the original application, a vague message that recipients say is confusing and unfair .
“They changed the rules without telling anyone,” said Garth Loga, a self-employed contractor in Courtenay, British Columbia, who had been forced to shut down his business for 33 years and now sells his truck and tools to cover his sudden $ 14,000 repayment.
“We don’t just have it lying or stuffed under the mattress.”
Self-employed Canadians were eligible for CERB as long as they earned over $ 5,000 in 2019 or in the 12 months prior to applying. However, in the latest letters of reimbursement sent last week, the Canada Revenue Agency defines self-employment income as “net” self-employment income of at least $ 5,000.
Some CERB applicants have interpreted self-employment income as gross income, not net income, and argue that the CRA did not make this clear.
The credit rating agency denies the change of rules. The agency informed CTVNews.ca that it considers self-employment income to be net income before tax – gross income minus expenses.
“This is in line with the way self-employment income is calculated when dealing with the credit rating agency. To be clear, this position has not changed over the lifetime of the CERB, ”CRA spokesman Sylvie Branch said in a statement released Saturday.
For Loga, that three-letter word makes the difference. In 2019, he grossed over $ 10,000 gross from his business which consisted primarily of satellite dish installation and internet services. But after deducting expenses, his net income fell to around $ 2,000, well below the $ 5,000 CERB threshold.
“I’ve always worried that would happen,” said Loga, so he kept detailed records of his CERB application and provided copies to CTVNews.ca.
The term Self-Employed Income “Net” does not appear anywhere in these original CERB applications from March through September. Also, Net Income is not listed anywhere on the CRA’s “who Eligible” page for CERB, which is still online.
Loga said the first time the word “network” appeared in a letter he received on November 26, informing him that after reviewing his file, CRA officials could not confirm that he met CERB requirements.
While the letter stated that there was no penalty or interest for an “honest mistake,” he encouraged Loga to pay the CERB amounts by December 31, “lest we send you a tax slip for the amount received.”
CERB is considered taxable income, and tax experts have long advised Canadians to keep this in mind when budgeting.
Loga said his accountant advised him to consider a lawsuit against the credit rating agency, but said legal fees would likely cost him more than paying back.
The CRA said it was “sympathetic” to the fact that for some people paying off CERB would be a challenge and that it would give Canadians more time and flexibility to pay back what they owed.
However, in this case, the agency claims that the letters sent were not a mistake.
“CERB recipients who do not meet these eligibility criteria will have to reimburse the CERB payments they receive,” the agency said.
Logos says it is frustrating that a benefit to save Canadian workers like him is now being used against him. After weeks of vacation, he said he couldn’t even afford Christmas gifts for his children.
“We are definitely conscientious and save what we can and we have some money, but it’s just bad taste, bad timing, whatever you want to call it.”
“ Kick in the teeth ”
Phil Cox owns a cinema supply company in Kitchener, Ont. He said that if it weren’t for CERB, he would have closed his business six months ago, rather than plunging into his savings to keep going.
Initially, Cox wasn’t sure if he qualified for the CERB. One of his employees stole the company last year and had to write off $ 12,000, which cut his income significantly in 2019. Between him and his wife, each earned over $ 5,000 in gross income last year, but just under $ 5,000 net of income.
However, after checking with his accountant earlier this year to see if he was eligible, Cox applied for a CERB and was awarded $ 14,000. Now he is asked to return everything.
“It’s like a kick in the teeth,” said Cox. “It was frustrating because we felt we could keep our heads above the water and when I got this letter on Tuesday and was told to return it I am not even sure what we would do. And why did I try to keep our company open then? “
Worse, Cox says he would have qualified for CERB if he hadn’t had to write off for 2019 employee thefts.
“We always made over $ 5,000 a year,” he said. “It’s because of one employee.”
‘HOW IS THIS POSSIBLE?’
Jackie Cratt, the owner of a tattoo company with her husband in St. Catharines, Ontario. She was one of the first Canadians to apply for a CERB right after the application opened in March.
“We were among the first to be locked up because we are face to face, inches from people,” she said.
The money helped the couple stay afloat and put food for three children on the table. Then, last week, Cratt received a letter from the credit rating agency asking for a full refund – $ 14,000.
Cratt called the credit rating agency and spoke to the agent. It was then that she found out that while her gross income apparently allowed her to qualify for the CERB, her net income was not enough. And what mattered was her net income.
“I thought,” How is that possible? “Cratt told CTVNews.ca.
The reason is complicated. She and her husband have a litany of monthly expenses, from tattoo equipment, to rent, to heating. Moreover, they earn a large portion of their income on gift certificates, which are not treated as income until they are redeemed.
Cratt said there is no way her family will be able to pay off CERB anytime soon, especially after COVID-19 has taken all customers.
“I’m so confused and to be honest, it bothers me because what am I supposed to do here? Have a payment plan for the next 20 years? “
“ONE LITTLE WORD”
David Murray, an accountant in Wilmont, Ontario, said last week he had already heard from three clients about the same situation: their gross income allowed them to apply for CERB, but their net income fell below the $ 5,000 threshold, making ineligible according to similar letters they received from the credit rating agency.
“Honestly, it’s ridiculous,” Murray said. “The point is, one little word that causes the whole problem they decided to throw in there.”
Murray advised his clients not to return anything to the credit rating agency until they looked at it further. Meanwhile, he tried to contact the agency directly. He said he had spoken to a CRA agent this week who told him that while the word “network” had not appeared in the initial applications for self-employment, the word was implied.
“You can suggest anything you want, but if you don’t have it in writing, it doesn’t matter,” Murray said.
People affected by this change come from all walks of life. One thing is common to all of these people: they are self-employed and haven’t made a lot of money in 2019, perhaps because their business just had a bad year.
“The general theory is that if you own a business, you make a lot of money. On paper, yes, but once you’ve paid everything, you’d better go and work for someone else. But there is a long-term goal for this not to always be the case, ”said Murray.
“A few companies I have have this problem: They are newer companies, so they don’t have the high income they hope to get in the next few years.”
THE TAX EXPERT SAYS HE UNDERSTANDS THE PRINCIPLES
Jamie Golombek, managing director of Taxes and Estate Planning at CIBC Private Wealth Management, said he was surprised to hear that some people were confused about CERB qualification.
“From day one, I understand this is net income,” CTVNews.ca said Friday. “If the goal was $ 5,000 in income, it is not $ 5,000 in income.”
While the net income does not appear anywhere in the CERB application, Golombek pointed out that the term appears online on the CRA’s Q&A page.
“Owners who rely on operating income should consider their net income before tax (gross income less costs),” writes the rating agency in an expandable half-page section.
While tax experts may have noticed this wording, Golombek said it was possible that communications from the government were not as clear as they should have been to the public.
“The message is that we need to be careful when implementing government programs – and it has been implemented extremely quickly – it is very important that the government is very clear, lest we have these unfortunate communication misunderstandings,” he said.
Regardless, people who received CERB return letters are likely to follow them, Golombek said.
“Ultimately, if you were not entitled to it by law, I think you will eventually pay it off.”