Scott Park, CPA, CA
Many Canadians, especially self-employed individuals, have recently received a letter from the Canada Revenue Agency (CRA) indicating that they may not be eligible for the Canada Emergency Response Benefit (CERB) that they received and encouraged the recipient of the letter to repay the CERB amounts before December 31, 2020. This has caught many Canadians off-guard and has them very worried about making CERB repayments with money that they don’t have.
In order to be eligible for the CERB program, recipients must have had employment or self-employment income of at least $5,000 in 2019 or in the 12 months prior to applying.
The letter goes on to say that self-employed income is “net pre-tax income”, which means gross business revenues minus business expenses.
But many self-employed Canadians point out that the online CERB application wording was not clear and did not mention that applicants had to have more than $5,000 of “net self-employed income” to qualify. Instead, many people applied on the basis that their “gross self-employed income” was more than $5,000.
The CRA has gone on the record stating that the letters it sent out are meant to “explain what qualifies as earned income to be eligible for CERB, and what does not.” It adds that those receiving such letters “should not interpret it as a determination that they have definitively been deemed ineligible for the CERB.”
Under the Income Tax Act, there is no requirement or obligation for a taxpayer to claim expenses.
Therefore, self-employed Canadians who have received CERB benefits and have filed their 2019 tax returns should be able to easily amend their 2019 tax return by filing a T1-ADJ in order to reduce their expenses that they reported so that their net self-employed income is above the $5,000 threshold.
By doing so, the CERB recipient may have to pay some taxes, but they would be able to keep all of the CERB benefits that they received. It is a much better option to pay a little bit of tax rather than repaying the whole CERB benefit, which is likely to be thousands of dollars for many Canadians.
Tax Tip: If you find yourself in this situation, it is recommended to contact a local CPA accounting firm to discuss your specific situation and help with filing a T1-ADJ.
Disclaimer: The blogs posted on Scott Park & Co Inc. website provide information of a general nature. These blog posts should not be considered specific advice since each person's personal financial situation is unique and fact specific. Please contact us prior to implementing or acting upon any of the information contained in one of our blogs. Scott Park & Co Inc. cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.
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