When some Canadians began receiving notices that they had to return pandemic relief money given out as part of the Canada Emergency Response Benefit (CERB) program, one of the most commonly-asked questions was: but what if I already paid taxes on these funds?
The good news, according to the Canada Revenue Agency (CRA), is that if you were taxed on the funds you have to repay, there are processes to adjust 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. But many of them are now faced with paying back some or all of the benefit, due to a number of reasons including being ineligible, having returned to work too early, or having received an advance payment that the CRA has since determined was not justified.
Letters from Service Canada or the CRA informing Canadians they owed money started being delivered last fall, with a new round of notices going out last month.
This meant that many people had already listed CERB on their 2020 income tax return, and had been taxed on funds they were now being asked to return.
For many, this came as a shock. CTVNews.ca previously asked Canadians to reach out if they had received a letter saying they owed CERB funds, and numerous respondents highlighted their feeling of resentment in having already paid taxes on these funds.
The responses were emailed to CTVNews.ca in early June and have not all been independently verified.
Zak Horkoff told CTVNews.ca that he received CERB after being laid off early on in the pandemic in March 2020.
He returned to work fairly quickly, but still received an advance payment of $2,000 on top of his first weekly payment.
“When I filed my taxes in 2021 I made sure to include the CERB payments as income and was charged taxes on the amount accordingly,” Horkoff said.
Although he wasn’t surprised when told he would have to return that advance payment, he said he should not have to repay the full amount since he’s paid taxes on it.
Sarah Milligan of London, Ont., said that when she applied for employment insurance (EI) shortly after the pandemic started, she was switched over to CERB automatically. She has since received a letter stating she was overpaid and owes $2,000.
“When I did my 2020 taxes,I ended up owing over $700 in taxes because of CERB,” she said. She added that when she asked why she had to pay back a full $2,000 instead of having the value of the proportional taxes deducted, she was told she would have to amend it next year.”
She said this felt unfair, and that she hasn’t been financially stable since the beginning of the pandemic.
“This whole thing is stressful, I cannot pay this,” she said.
SO WHAT SHOULD I DO IF I PAID TAXES ON CERB I HAVE TO REPAY?
You still have to return the full amount that the CRA or Service Canada has asked for — there will be no funds deducted from the amount of CERB you owe based on the taxes you already paid.
However, CRA told CTVNews.ca in a statement that “individuals who repay COVID-19 benefit payments that they were not eligible to receive can claim the repayment as a deduction on their income tax return.”
Yannick Lemay, a tax expert at H&R Block, told CTVNews.ca in a phone interview that there are a few ways to go about this.
Generally, if there is an error or an issue with your income tax return in a past year, including repaying money to the government that you had previously reported as income, you can request a reassessment of a previous return through online services such as ReFILE or a form called T1ADJ, he explained.
“You can also use that form to file your amendment. And then what CRA does is that it will mail you a notice of reassessment,” he said. "So that is what becomes your official tax return for that year.”
This means a person can request to add new information to a previously-submitted tax return and have their taxes recalculated for that year.
When it comes to CERB repayments, you can decide which year you want to file the repayment as a deduction for.
“For repayments made before 2023, individuals can decide whether they want to claim it as an income tax deduction for the year they made the repayment--the year that the benefits were received, or split the deduction between either of those years, depending on what would best assist them with their tax situation,” the CRA stated.
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 CRA explained that it is developing a new form called T1B, “Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year.”
This form will be available foruse by the time Canadians are filing their 2022 tax returns next year.
“By filing this form with their return, people won't have to adjust their return for the previous year if they want to claim the deduction for the year they received CERB,” Lemay said. This form will let you choose which year you want to file the repayment in as a deduction, without having to formally request a reassessment of that year’s tax return.
WHAT IF I DON'T WANT TO WAIT UNTIL NEXT SPRING?
You can file a request for a reassessment of a previous tax period instead of waiting to correct the record on your 2022 tax return, but it may not be quicker, Lemay cautioned.
The first reason is that the CRA is experiencing many delays in processing.
“The second reason is that you don't have the slip that tells the amount that you repaid to the government,” he said.
After you repay the CERB amount owed, you will receive a tax receipt in the mail in January or February, he explained, which will help you file your repayment as a deduction.
While you do not need this slip to request a reassessment, it makes the process much easier.
Those determined to file a request for reassessment can do so using a copy of a cheque mailed to the CRA or Service Canada, or electronic payment receipts as proof that a repayment was made.
“But it's not something I would suggest, because also you don't know your whole income for 2022, so maybe it will be more beneficial for you to ask for the deduction in 2022 when the year's over and you have all the information in front of you,” he said.
The CRA added in its statement that “if an individual is filing a return or request for adjustment by paper, the information from their T4A slip or letter they have received from Service Canada should be included with the return or the request for adjustment. If an individual is filing a return electronically or is submitting a request for adjustment electronically through My Account or ReFILE, the documents and information must be kept in case validation is required later.”
WHAT IF I ALREADY REPAID THE 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 can’t use the upcoming T1B form.
Instead, you have to request a reassessment of your 2020 or 2021 return in order to file the repayment as a deduction on one of those returns.
“If you repaid in November, you either claim the deduction on your 2021 tax return or you file that T1ADG to modify your 2020 return, but that's on you to calculate which is more advantageous for you,” Lemay said.
WHAT IF CERB PAYMENTS I NOW HAVE TO RETURN AFFECTED A PREVIOUS TAX REFUND?
“If [someone] received less money, for example, from a tax return because of the CERB payment that they received, that would be because their taxable income for that year was either higher than the previous year, or the total taxes that they paid during the year was lower than what they paid in the previous year,” Lemay said.
One situation is that, due to CERB, a person’s income could have crossed out of the threshold for the GST credit, potentially making their tax refund lower than usual.
Lemay said if you’re concerned that your tax refund was affected by CERB in a previous year, filing the repayment as a deduction on your taxes could help correct this as well.
“[If your income] was too high because of the CERB payments that you received, if you adjust your return and then you claim that deduction for the repayment that you made, then if your income goes below the threshold to receive the GST credit, then you will receive it.”
Lemay said that while this entire situation may be stressful for Canadians who had no idea they’d have to repay any of the CERB, it’s important to remember that there are no penalties or interest for the repayments. He said those who are worried that they can’t pay it back should contact the CRA or Service Canada as soon as possible to work out a flexible payment schedule.
