COVID-19 Benefit Audits: CERB Recipients May Face Severe Consequences

Walter Harder

In order to get pandemic relief benefits in the hands of Canadians quickly, the government (through ESDC and CRA) issued relief benefits to anyone who applied and indicated that they met the criteria for entitlement to the benefits. ESDC and CRA are now following up to ensure that those who were not entitled to the benefits repay them, and it is causing worry.  Tax and financial advisors can help.

Last November, ESDC started sending out Notice of Debt to Canadians who received the $2,000 advanced CERB payment in June 2020 through them but did not apply for CERB in subsequent periods. ESDC will continue to issue such notices in June and July. Unless the recipients can prove that they were, in fact, entitled to receive the advanced payment, they must repay the amount received. Those who fail to do so may see their GSTC payments applied to the debt, and if they are eligible for EI benefits, one-half of their EI entitlement may be applied to the outstanding balance.

Starting last month (May 2022), CRA began to send out Notices of Redetermination to taxpayers who collected CERB and other pandemic-related benefits from CRA to which they were not entitled. The amount to be repaid will be added to the taxpayer’s account as a debt, and payments from CRA such as tax refunds and GSTC credits may be applied to reduce the debt. 

If there is not offset, the debt will start to bring unpleasant consequences.  CRA indicates that no interest will accrue on outstanding debts arising from the receipt of COVID relief benefits. However, if taxpayers refuse to pay or make payment arrangements, CRA will use its usual methods to recover the debt. These methods could include garnishing of 30% of the taxpayer’s wages or 100% of amounts held in a Canadian financial institution. In extreme cases, CRA may place a lien on the taxpayer’s assets, including their home, or seize the taxpayer’s personal assets and sell them to clear the debt.

There are a number of issues for advisors and clients to discuss:

1. Taxpayers who receive either a Notice of Debt or Notice of Redetermination but feel that they were entitled to receive the benefits should contact CRA and provide evidence of their entitlement.Advisors can advocate for their clients in this regard.
2. Any amounts received in 2020 and repaid by the end of this year (2022) may be claimed on the taxpayer’s tax return for either the year the benefits were received or the year that the benefits were repaid. Tthat’s going to generate a tax refund to help with cash flow.
3. Repayment plans will need to be made with the CRA to avoid severe consequences.

Bottom Line:  Financial professionals can help clients struggling with debt to make the right choices about budgeting to pay the CRA.  It’s an important, high value conversation.

Additional educational resources: With tax season 2022 winding down, it’s the right time to change gears and focus on how you can help reduce your clients’ taxes and build wealth this year and beyond.  If you missed the May 18 Virtual CE Summit, there’s still an opportunity to access the incredible education with the Advanced Retirement & Estate Planning online course, featuring live speaker recordings.