Unclear wording of CERB eligibility means some recipients asked to pay everything back
TORONTO -- Some Canadians who applied for the Canada Emergency Response Benefit (CERB) are being asked to repay the entire sum by Dec. 31 because of one word that was never mentioned in the original application, an unclear communication that recipients say is confusing and unfair.
“They changed the rules without telling anyone anything,” said Garth Loga, a self-employed contractor from Courtenay, B.C., who was forced to shutter his business of 33 years and is now selling off his truck and tools to cover his sudden $14,000 repayment.
“We don’t just have it lying around or stuffed under a mattress.”
Self-employed Canadians were eligible for CERB as long as they made more than $5,000 in 2019 or within the 12 months before they applied. However, in recent letters sent out last week requesting repayments, the Canada Revenue Agency defines self-employed income as “net” self-employment income of at least $5,000.
Some CERB applicants interpreted self-employment income as their gross income, not net income, and say the CRA did not make this clear.
The CRA denies changing the rules. The agency told CTVNews.ca that it considers self-employment income as the net pre-tax income — gross income minus expenses.
“This is consistent with how self-employment income is calculated when dealing with the CRA. To be clear, there has been no change to this position during the lifecycle of the CERB,” CRA spokesperson Sylvie Branch said in a statement Saturday.
For Loga, that three-letter word makes all the difference. He earned more than $10,000 gross income in 2019 from his business, which mostly involved installing satellite dishes and internet service. But once his expenses were subtracted, his net income dropped to around $2,000, well below the CERB’s $5,000 threshold.
“I was always worried that this would happen,” said Loga, which is why he kept detailed records of his CERB application and provided copies to CTVNews.ca.
The term “net” self-employment income does not appear anywhere in those original CERB applications from March to September. Nor is net income mentioned anywhere on the CRA’s “who is eligible” page for CERB, which is still available online.
The first time the word “net” appeared, Loga said, was in a letter he received on Nov. 26 advising him that, after reviewing his file, CRA officials could not confirm that he meets the requirements for CERB.
While the letter said there was no penalty or interest for an “honest mistake,” it encouraged Loga to repay the CERB amounts by Dec. 31, “so that we don’t send you a tax slip for the amount you received.”
CERB is considered taxable income, and tax experts have long advised Canadians to keep that in mind when budgeting.
Loga said his accountant advised him to consider a lawsuit against the CRA, but he said the legal fees would likely cost him more than the repayment.
The CRA said it is “sympathetic” to the fact that, for some people, repaying CERB will be challenging, and that it is giving Canadians more time and flexibility to repay what they owe.
However, in this case, the agency says the letters sent out were not a mistake.
“CERB recipients who do not meet this eligibility criteria will need to repay CERB payments received,” the agency said.
What’s frustrating, Loga says, is that a benefit designed to bail out Canadian workers like him is now being used against him. With the holidays weeks away, he said he can’t even afford Christmas presents for his kids.
“We are definitely diligent and we save what we can and we have some money, but this is just poor taste, poor timing, whatever you want to call it.”
‘A KICK IN THE TEETH’
Phil Cox owns a theatrical supply company based in Kitchener, Ont. If it wasn’t for CERB, he said he would’ve shut down his business six months ago rather than dip into his savings to keep things going.
Originally, Cox wasn’t sure he qualified for CERB. One of his employees stole from the business last year, and he had to write off $12,000, which significantly knocked down his 2019 income. Between him and his wife, they each brought in more than $5,000 gross income last year, but just under $5,000 net income.
However, after checking with his accountant earlier this year about eligibility, Cox applied for CERB and received $14,000. Now, he’s being asked to pay everything back.
“It’s like a kick in the teeth,” Cox said. “It’s frustrating because we felt we could keep our heads above water and when I got that letter on Tuesday, and being told to pay it all back, I’m not even sure what we’re going to do. And why’d I then struggle to keep our business open?”
To make matters worse, Cox says he would’ve qualified for CERB had he not had to write off the employee theft from 2019.
“We’ve always made more than $5,000 a year,” he said. “It’s because of one employee.”
'HOW IS THAT POSSIBLE?'
Jackie Cratt, who owns a tattoo business with her husband in St. Catharines, Ont., is in a similar position. She was among the first Canadians to apply for CERB as soon as applications opened in March.
“We were one of the first to get shut down because we are face to face, inches away from people,” she said.
The money helped keep the couple afloat and put food on the table for their three kids. Then, last week, Cratt received a letter from the CRA asking her to repay the amount in full — $14,000.
Cratt called the CRA and spoke with an agent. That’s when she learned that, while her gross income seemingly allowed her to qualify for CERB, her net income wasn’t enough. And her net income was what mattered.
“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. On top of that, they earn a large chunk of their income from holiday gift certificates, which don’t get applied as income until they are cashed in.
Cratt said there’s no way her family will be able to afford to repay the CERB any time soon, especially after COVID-19 has taken away all their customers.
“I’m so confused and it’s honestly giving me anxiety, because what am I supposed to do here? Be on a payment plan for the next 20 years?”
'ONE LITTLE WORD'
David Murray, an accountant based in Wilmont, Ont., said he’s already heard from three clients in the past week in the same predicament: their gross income allowed them to apply for CERB, but their net income falls below the $5,000 threshold, rendering them ineligible according to similar letters they received from the CRA.
“It’s ridiculous, to be honest,” Murray said. “It’s that the one little word that’s causing this whole problem that they’ve decided to throw in there.”
Murray advised his clients not to pay anything back to the CRA until he looks into the issue further. In the meantime, he tried reaching out to the agency directly. He said he spoke with a CRA agent this week who told him that, while the word “net” didn’t appear in those initial applications regarding self-employment, the word was implied.
“You can imply anything you want, but if you don’t have it in writing, it’s not valid,” Murray said.
The sort of people affected by this change come from all walks of life. One thing these individuals all have in common: they’re self-employed and didn’t make much money in 2019, possibly because their business simply had a bad year.
“The general theory is if you own a business, you make a lot of money. On paper you might, but after you’re done paying out everything, you’re better off going and working for somebody else. But there’s the long-term goal of it not always being that way,” Murray said.
“A couple of the businesses that I’ve got that have this issue: they’re newer businesses, so they don’t have the high levels of income that they’re hoping to obtain within next few years.”
TAX EXPERT SAYS HE UNDERSTOOD RULES
Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, said he’s surprised to hear that some people were confused by the eligibility for CERB.
“My understanding from day one is that it’s been net income,” he told CTVNews.ca on Friday. “If the goal was $5,000 income, it's not $5,000 of revenue.”
While net income doesn’t appear anywhere on the application for CERB, Golombek pointed out the term does appear online in a Q&A page on the CRA’s website.
“Owners who rely on business income should consider their net pre-tax income (gross income less expenses),” the CRA writes in a drop-down section midway down the page.
While tax experts may have noticed this wording, Golombek said it’s possible that communications from the government were not as clear as they should’ve been for the general public.
“The message here is we have to be careful in rolling out government programs -- and this was rolled out extremely quickly -- it’s very important that the government is very clear so we don’t have these unfortunate misunderstandings in terms of communication,” he said.
Regardless, people who received letters requesting CERB be paid back will likely be expected to follow through, Golombek said.
“At the end of the day, if you weren’t entitled to it by law, then I think you’re going to end up paying it back.”