Tax Tip Thursday

The CRA sure is in fine form this year, sending out demands for CERB, CRB, and even EI repayment. It is actually not the CRA, but instead it’s Employment and Social Development Canada (ESDC) sending you the letter.

Unfortunately the letter says almost nothing on it except that you owe them money. The few that I have seen already also don’t have a date of occurrence other than when the letter was sent out, so you are left to your own devices to figure out whether it is correct or not. The only saving grace is that there is a phone number on the form that recommends everyone call in to find out the EXACT details of their overpayment. I believe you will have the opportunity to dispute it, but they have not yet provided a method to do so.

So who knows?

You received a letter — what’s next?

Well, you should call them! At least you opened your mail, though. We talked about that a little bit last week.

Like I said, the letters all have a phone number on them that you should call. The people who answer should be able to give you details about what they think they overpaid you and when.

What should you do if you already paid taxes on your CERB money?

You might be wondering, though, what about the taxes you paid on those dollars? When some Canadians began receiving notices saying they had to return some of the money given out as part of the Canada Emergency Response Benefit (CERB) program, many wondered the same thing. The good news is, according to the CRA, if you paid tax on funds that you now have to repay, they have processes to adjust for that.

In 2020, as the federal government rushed to ensure that Canadians suddenly out of a job due to COVID-19 were able to access help, people were quickly approved for CERB. Many of these people are now faced with paying back some or all of the benefit for any of a variety of reasons: being ineligible, having returned to work too early, or having received an advance payment that the CRA has since determined was not justified.

For example, if you were laid off early on in the pandemic, say in March 2020, collected $2,000 from CERB, but then returned to work soon after, that could be overpayment. You would have paid tax on this $2,000, and the CRA still wants the whole $2,000 back upfront. You will be able to claim the repayment as a deduction on your next income tax return. You have some options for this.

Generally, if there is an error or issue with your income tax return in a past year, you can request a reassessment of a previous return through online services such as ReFILE or a form called T1ADJ.

When it comes to CERB repayments, you can decide which year you want to file the repayment as a deduction only if you have not made the payment yet. For payments bade before 2023, individuals can decide whether they want to claim it as an income tax deduction for the year they made the repayment or the year that the benefits were received.

A more straightforward option that doesn’t require a reassessment is also on the way for those willing to wait until the next tax period. The new T1B form, titled “Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year“, will be available for use by the time we are filing our 2022 tax returns next spring. By filling this form with your return, you won’t have to adjust it for the previous year if you want to claim the deduction for the year you received CERB. This form will let you choose which year you want to file the repayment as a deduction without having to formally request a reassessment.

What if you already repaid CERB in 2021?

Many Canadians were informed that they needed to pay back an advance payment of CERB starting last fall. If you repaid the owed funds in 2021, you CANNOT use the upcoming T1B form. Instead, you will have to request a reassessment of your 2020 or 2021 return to file the repayment as a deduction on one of them using either of the methods above.

What if the payments I’m returning affected a previous tax refund?

This could be tricky! When filing an adjustment, all aspects of your return should be reassessed and revised accordingly. You will have to watch to make sure everything was done correctly! Some people will have surpassed thresholds for Trillium credits, GST credits, and potentially even OAS or other income-contingent subsidies, grants, and incomes, so it is very important that you make sure everything gets adjusted properly. You may even have to follow up with other government bodies to reinstate other incomes, etc…

The upside is that there are no penalties or interest for the repayments and it is possible to work out a flexible payment schedule.

Need help paying back your CERB? No problem. Lots of people are in this boat and we have some spare paddles and lifejackets. Give us a call or book an appointment today and we’ll be happy to help you out!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.