CERB & Income Tax: How to avoid surprises

10 February 2021 by National Bank
cerb tax

At the beginning of the pandemic, the federal government stepped in quickly to establish several financial aid programs for citizens. Two of the most popular offers are the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB). If you received either of these, they could have a major impact on your tax return. Here are 6 questions to help you get prepared.

1. What are the CERB and CRB?

According to Statistics Canada, the monthly layoff rate was more than 12% in April 2020. The CERB was then quickly offered to Canadian workers affected by the pandemic.

The CERB at a glance:

  • A $2,000 benefit paid over for a four-week period
  • Paid out for a maximum of 28 weeks, up to $14,000. 

When the CERB ended after 28 weeks, the CRB took over as the program offering financial support to salaried employees and independent workers affected by COVID-19 and who are not eligible for Employment Insurance.

The CRB at a glance:

  • $1,000 benefits (or $900 after tax) 
  • A maximum of 26 weeks (or 13 times every two weeks) and covers the period from September 27, 2020 to September 25, 2021. 
  • Unlike the CERB, the CRB is retroactive and subject to tax withheld at source. That means the government sets aside a portion of the benefit amount for when you file your tax return.

As at December 6, 2020, according to the federal government, nearly 1,300,000 Canadians had requested the CRB. As for the CERB, nearly 9,000,000 Canadians had requested the benefit as at October 4, 2020.

2. Am I eligible for the CERB and CRB?

Criteria to be eligible for the CERB and CRB:

  • Be 15 or older
  • Have earned at least $5,000 in the last twelve months or in the previous year (2019)
  • Lost your job or income, been in quarantine, have suffered from COVID-19 or had to take care of a person with COVID-19. 

There are detailed rules, but in general, if your income was affected by COVID-19, there was a good chance that you would be eligible for the CERB. However, if you left your job voluntarily, you would not have been eligible. 

Criteria are similar for the CRB. To receive this benefit, you must also be available to work and not receive Employment Insurance.

There are other benefits if you're not eligible for the CRB, for example if you’re a caregiver because of COVID-19 or you’re suffering from COVID-19. There is also help for businesses

3. Are the CERB and CRB subject to tax?

Yes, the CERB and CRB are taxable benefits. 

That means that if you received amounts under the CERB and the CRB, you must declare this amount in your 2020 federal tax return (and your provincial tax return for Quebec residents), which, if nothing changes, should be submitted by April 30, 2021. 

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4. How much tax will I have to pay?

It varies for each person.

It all depends on your 2020 income, which will be added up. For example, if you earned $10,000 in total in 2020, you probably won’t pay any tax, or very little. However, the higher your taxable income, the higher the percentage of tax that you will have to pay. This is the principle of the progressive Canadian tax!

To estimate how much tax you’ll have to pay, there are many online calculators. But, for a more specific answer and to avoid as many errors as possible, speak to a tax specialist or accountant.

The good news about the CRB is that 10% has already been withheld for tax purposes. It’s a bit like a paycheque. Normally, if you look at your pay stub, you’ll see that a portion is set aside for your taxes. No tax was withheld on the CERB. So there is a good chance that you’ll have to pay taxes on this amount.

5. How should I prepare if I received the CERB or CRB when I wasn’t eligible?

If you weren’t entitled to it, you must repay the amounts you received. Ideally, you should contact the Canada Revenue Agency or Service Canada to inform them of the error and agree on a repayment plan if you don’t have all the money readily available.

If you owe money or think you owe money, try to set some amounts aside as soon as possible. There are several strategies you can adopt. A few dollars here and there can make all the difference when it's time to repay the amounts owed.

6. What if you were a victim of fraud?

Unfortunately, fraudsters took advantage of the health crisis to make profits at the expense of honest citizens. As at November 30, 2020, 6,526 cases of fraud involving the CERB were reported to the Canadian Anti-Fraud Centre, and that may only be the tip of the iceberg.

If you're aware of fraud or have been a victim, contact the authorities to report it. Keep as much evidence as possible (messages, emails, etc.) and adopt good digital hygiene.

Remember that financial institutions or the government will never send you a text message or email asking you to disclose personal information. If you have to call the Bank, never click on the hyperlinks, call the number on the back of your bank card yourself.

Don’t hesitate to contact an expert to clarify your own situation. We’re here to answer your questions!

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