CERB Refunds: Am I Owed Interest?

Marco Iampieri B.A., JD, M.B.A.

To address the self-employment gross vs. net issue, the Government of Canada registered the Canada Emergency Response Benefit and Employment Insurance Emergency Response Benefit Remission Order (“Remission Order”) on May 12, 2021. The Remission Order redresses the self-employed workers who did not qualify for CERB because of the gross vs. net issue by providing that a self-employed Canadian earning less than $5,000 in net income who received CERB, who otherwise would have qualified for CERB, need not return the CERB monies.

Section 14 of the Canada Emergency Response Benefit Act states that there is “no interest payable on any amount owing to Her Majesty in right of Canada under this Act as a result of an erroneous payment or overpayment.” However, the Canada Emergency Response Benefit Act does not address a situation in which funds were remitted to the CRA and returned to the taxpayer.

Under the Income Tax Act, refunds are legislated under Part 1 – Income Tax, Division I – Returns, Payment and Appeals at section 164. Section 164 states, among other things, that if a taxpayer overpays income tax for a year within the past three years, that the Minister must refund the overpayment.

Subsection 164(3) of the Income Tax Act addresses Interest on refunds and repayments and states, among other things, that Interest is payable to a taxpayer at the prescribed rate on refunds and repayments to a taxpayer.

The definition of overpayment is found under subsection 164(7), stating that “overpayment of a taxpayer for a taxation year means (a)… the total of all amounts paid on account of the taxpayer’s liability under this Part for the year minus all amounts payable in respect thereof”. “Amount” is defined under subsection 248(1) to mean “money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing”.

It is unclear whether the voluntary CERB repayment on behalf of self-employed individuals and the return of the CERB to the self-employed individuals would qualify as the return of an “overpayment” under the Income Tax Act. Also, there does not seem to be legislation stating that Interest is not payable by the CRA to a taxpayer in circumstances where a taxpayer under Part I earns taxable amounts that are given to the CRA for a period of time and then returned to the taxpayer.

Key Takeaway

It seems as though there are no express obligations for the CRA to pay interest on reimbursed CERB funds.  Therefore, it is unclear whether self-employed Canadians who found themselves in the gross vs. net CERB issue crosshairs are owed interest on reimbursed CERB funds. Guidance from the CRA regarding this issue of interest on CERB reimbursements would be timely. Also, guidance concerning whether the CERB reimbursement is a return of funds because of an “overpayment” of Part I tax payable as legislated under 164(7) of the Income Tax Act will provide the required clarity for advisors to guide their clients accurately.

Additional educational resources:  Be sure to enrol in the September 23 CE Summit to discuss these matters with Marco as well as taking in GST, financial statement and payroll audit-proofing tips and traps. Early registration ends September 15. 

Check out the full agenda and enrol here