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Some Canadians who applied for the Canada Emergency Response Benefit (CERB) are being asked to repay the entire sum by Dec. 31 because of one word that was never mentioned in the original application, an unclear communication that recipients say is confusing and unfair.

“They changed the rules without telling anyone anything,” said Garth Loga, a self-employed contractor from Courtenay, B.C., who was forced to shutter his business of 33 years and is now selling off his truck and tools to cover his sudden $14,000 repayment.

“We don’t just have it lying around or stuffed under a mattress.”

Self-employed Canadians were eligible for CERB as long as they made more than $5,000 in 2019 or within the 12 months before they applied. However, in recent letters sent out last week requesting repayments, the Canada Revenue Agency defines self-employed income as “net” self-employment income of at least $5,000.

Some CERB applicants interpreted self-employment income as their gross income, not net income, and say the CRA did not make this clear.

The CRA denies changing the rules. The agency told CTVNews.ca that it considers self-employment income as the net pre-tax income — gross income minus expenses.

“This is consistent with how self-employment income is calculated when dealing with the CRA. To be clear, there has been no change to this position during the lifecycle of the CERB,” CRA spokesperson Sylvie Branch said in a statement Saturday.

For Loga, that three-letter word makes all the difference. He earned more than $10,000 gross income in 2019 from his business, which mostly involved installing satellite dishes and internet service. But once his expenses were subtracted, his net income dropped to around $2,000, well below the CERB’s $5,000 threshold.

“I was always worried that this would happen,” said Loga, which is why he kept detailed records of his CERB application and provided copies to CTVNews.ca.

The term “net” self-employment income does not appear anywhere in those original CERB applications from March to September. Nor is net income mentioned anywhere on the CRA’s “who is eligible” page for CERB, which is still available online.

The first time the word “net” appeared, Loga said, was in a letter he received on Nov. 26 advising him that, after reviewing his file, CRA officials could not confirm that he meets the requirements for CERB.

While the letter said there was no penalty or interest for an “honest mistake,” it encouraged Loga to repay the CERB amounts by Dec. 31, “so that we don’t send you a tax slip for the amount you received.”

CERB is considered taxable income, and tax experts have long advised Canadians to keep that in mind when budgeting.

Loga said his accountant advised him to consider a lawsuit against the CRA, but he said the legal fees would likely cost him more than the repayment.

The CRA said it is “sympathetic” to the fact that, for some people, repaying CERB will be challenging, and that it is giving Canadians more time and flexibility to repay what they owe.

However, in this case, the agency says the letters sent out were not a mistake.

“CERB recipients who do not meet this eligibility criteria will need to repay CERB payments received,” the agency said.

What’s frustrating, Loga says, is that a benefit designed to bail out Canadian workers like him is now being used against him. With the holidays weeks away, he said he can’t even afford Christmas presents for his kids.

“We are definitely diligent and we save what we can and we have some money, but this is just poor taste, poor timing, whatever you want to call it.”

A KICK IN THE TEETH

Phil Cox owns a theatrical supply company based in Kitchener, Ont. If it wasn’t for CERB, he said he would’ve shut down his business six months ago rather than dip into his savings to keep things going.

Originally, Cox wasn’t sure he qualified for CERB. One of his employees stole from the business last year, and he had to write off $12,000, which significantly knocked down his 2019 income. Between him and his wife, they each brought in more than $5,000 gross income last year, but just under $5,000 net income.

However, after checking with his accountant earlier this year about eligibility, Cox applied for CERB and received $14,000. Now, he’s being asked to pay everything back.

“It’s like a kick in the teeth,” Cox said. “It’s frustrating because we felt we could keep our heads above water and when I got that letter on Tuesday, and being told to pay it all back, I’m not even sure what we’re going to do. And why’d I then struggle to keep our business open?”

To make matters worse, Cox says he would’ve qualified for CERB had he not had to write off the employee theft from 2019.

“We’ve always made more than $5,000 a year,” he said. “It’s because of one employee.”

HOW IS THAT POSSIBLE?

Jackie Cratt, who owns a tattoo business with her husband in St. Catharines, Ont., is in a similar position. She was among the first Canadians to apply for CERB as soon as applications opened in March.

“We were one of the first to get shut down because we are face to face, inches away from people,” she said.

The money helped keep the couple afloat and put food on the table for their three kids. Then, last week, Cratt received a letter from the CRA asking her to repay the amount in full — $14,000.

Cratt called the CRA and spoke with an agent. That’s when she learned that, while her gross income seemingly allowed her to qualify for CERB, her net income wasn’t enough. And her net income was what mattered.

“I thought, ‘How is that possible?’” Cratt told CTVNews.ca.

The reason is complicated. She and her husband have a litany of monthly expenses, from tattoo equipment to rent to heating. On top of that, they earn a large chunk of their income from holiday gift certificates, which don’t get applied as income until they are cashed in.

Cratt said there’s no way her family will be able to afford to repay the CERB any time soon, especially after COVID-19 has taken away all their customers.

“I’m so confused and it’s honestly giving me anxiety, because what am I supposed to do here? Be on a payment plan for the next 20 years?”

So, whether it’s a CRA error or misinterpretation by the CERB applicants some Canadians may have to payback CERB due to unclear working on CERB.

Previously, landlords had to apply the subsidy (CERCA) with CMHC and tenants were at the mercy of the landlords for the rent reduction. Now CERS has replaced CERCA which will allow tenants to apply this subsidy directly with CRA

Canadian businesses, non-profit organizations, or charities who have seen a drop in revenue due to the COVID-19 pandemic may be eligible for a subsidy to cover part of their commercial rent or property expenses, starting on September 27, 2020, until June 2021.

This subsidy will provide payments directly to qualifying renters and property owners, without requiring the participation of landlords.

If you are eligible for the base subsidy, you may also be eligible for lockdown support if your business location is significantly affected by a public health order for a week or more.

A business can obtain this subsidy on up to $75,000 (per location up to a maximum of $300K for all locations combined) of qualified business expenses which are listed below:

If you rent the qualifying property, your eligible expenses are:

• Rent (including rent based on a percentage of sales, profit or similar criteria)
• Amounts required to be paid or payable by you under a net lease (either to the lessor or a third party). These required amounts might include:
  • base rent
  • regular payments for customary operating expenses, such as
    • property insurance
    • utilities
    • common area maintenance
  • property and similar taxes, including school and municipal taxes
  • regular payments to the lessor for customary ancillary service

If you own the qualifying property, your eligible expenses are:

• Property and similar taxes
  • Includes school taxes and municipal taxes, if these are part of your property tax assessment
• Property insurance
• Interest on commercial mortgages for the purpose of purchasing real property
  • Your mortgage amount cannot exceed the lesser of:
• the lowest total principal amount secured by one or more mortgages on the property at any time after it was acquired
• the cost amount of the property.

Need help with this subsidy? Give us a call at 416-414-3100.

COVID X – STAY HOME

As many Canadians are going through the health and financial crisis caused by COVID-19, Canadian Government has taken following steps to help Canadian Tax Payers. These steps are temporary and more announcements will come in future if this pandemic continues for a long time.

TEMPORARY INCOME SUPPORT FOR WORKERS AND PARENTS

For Canadians without paid sick leave who are sick, quarantined or forced to stay home to care for children

• Waiving one-week waiting period for EI sickness benefits effective from March 15, 2020.
• Introducing Emergency care benefit providing up to $900 bi-weekly, for up to 15 weeks. Applications for benefits will start in April 2020.

Longer-Term Income Support for Workers

• Introducing Emergency support benefit to provide up to $5 billion in support to workers who are not eligible for EI and who are facing unemployment.
• Implementing the EI Work sharing program, which provides EI benefits to workers who agree who agree to reduce their normal working hours as a result of developments beyond control of employers by extending the eligibility to 76 weeks.

Income Support for Individuals Who Need It Most

• Proposing one time special payment by early May 2020 through GST credit. This will double the GSTC credit that a family received for 2019-2020 year. This will average close to $400 for single individual and $600 for couples.
• Increasing annual Canada Child Benefit of $300 per child which will be added to the payment for the month of May 2020.
• Placing six-month interest-free moratorium on the repayment of Canada Student Loans for all individuals currently in the process of repaying these loans.
• Reducing required minimum withdrawals from Registered Retirement Income Funds (RRIFs) by 25% for 2020

Flexibility for Taxpayers (Deadline Extensions)

• For individuals (other than trusts), the return filing due date will be deferred until June 1, 2020.
• For trusts having a taxation year ending on December 31, 2019, the return filing due date will be deferred until May 1, 2020.
• All taxpayers are allowed to defer income tax payments owing between March 18, 2020 and August 31, 2020 until after August 31, 2020.

SUPPORT FOR BUSINESSES

Helping Business Keep their workers

Effective March 18, 2020 all employers facing revenue losses and to prevent lay-offs government is providing wage subsidy of 10% gross wages during the three month period up to a maximum of $1,375 per employee and $25,000 per employer.
For example if an employer will pay 13,750 in wages to an employee during a period of three months starting from March 18, 2020 will be able to deduct 1,375 in total from the payroll tax remittance for each employee and pay the balance to CRA. Maximum subsidy an employer can receive over these 3 months is 1,375 per employee and $25,000 in total considering all employees.

Flexibility for Business Filing Taxes

The Canada Revenue Agency will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.
The Canada Revenue Agency will not contact any small or medium (SME) businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. For the vast majority of businesses, the Canada Revenue Agency will temporarily suspend audit interaction with taxpayers and representatives.

Steps Taken at our Office

Dear friends, as our services are classified as essential services we will remain open and continue to help our clients with our services and any questions they may have. However, most of our services are provided remotely with no in- person meetings unless it’s absolutely essential and all precautionary measures are followed. Please be assured our office is following all precautionary measures that are recommended by Public Health Canada including social distancing, use of masks and sanitizers etc. Our clients can drop off their documents and file at the reception or in a drop box with their name on it. Our files are regularly assigned to staff. All the questions and consultations are done via email or phone. We will keep updating our friends and clients with any government announcements and any changes in our operations from time to time until this crisis is over.

Sincerely,

Ish Jindal CPA, CGA, CMA (USA)
Ish Jindal CPA Professional Corporation

Toronto Downtown Office (New)
5700-100 King Street West
Toronto, ON M5X 1A9
jindaltax.com
Phone: 416-414-3100

How much to invest in RRSP and TFSA?

Your 2015 Notice of Assessment will only provide you how much is your RRSP deduction and TFSA contribution room is for tax year 2016. But is this the correct amount you should invest. You may be able to minimize your tax owing or refund without maximizing your RRSP contribution. This is the time to contact us to find out how much you should invest in RRSP and TFSA and what are other options to maximize your current after tax dollars and your retirement wealth.

Just a few Days left to get corporate permanent insurance under old tax rules.

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We work with Canada’s topmost insurance companies, their Certified Financial Planners, Insurance Advisers and Wealth Management Experts to advise our clients on the tax, insurance and investments matters and help them maximize the wealth for their loved ones. There is no cost for a one on one meeting and no upfront cost. Just give us a call we will come to your office or home and will explain how permanent insurance and its generous tax advantages before Dec 31, 2016 can maximize your wealth and the wealth of your loved ones.

The taxpayers were already required to report the sale of principal residence if it was not a 100 % principal residence from the date owned by the tax payer. Effective 2016 even if sale of a home qualifies as principal residence for all the years from the date owned it MUST be reported on the tax return. Many of our clients consider it as an aggressive action by CRA, however, this action is intended to crack down individuals who don’t report the sale of properties resulting in capital gain tax. CRA has a reassessment period of three years from the date of the initial assessment after which any reassessment for that year can be considered as invalid. This becomes a big issue when a taxpayer does not report the sale of property treating the property as principal residence even though it does not meet the definition of principal residence. However, when CRA audits such type of taxpayers many times the reassessment period gets expired.

In a recent campaign CRA levied some $11.6 million in penalties to 2,500 taxpayers from BC and Ontario who were subsequently found to have demonstrated “gross negligence in failing to report their tax obligations correctly.” So many other tax evaders would have escaped as they were either not audited or were audited but the normal reassessment period of three years was passed. Therefore, to bring the fairness in the tax system and to crack down such tax evaders CRA has implemented this change of reporting the sale of principal residence which was required anyways if it was not a 100% principal residence throughout the period from the date of ownership. But the good thing is that there is no change in the taxation rules of the principal residence. So, yes it is an extra reporting required but eventually this is a step well taken for the good of the taxpayers in general

Principal residence exemption not available to the non-resident property owners.

If a taxpayer was not a resident of Canada at the time of purchase of property and even though an immediate family member was living in that property the principal residence exemption will be disallowed for all the years in which the owner was a non-resident. When making the principal residence designation “1+ rule” is used to determine the principal residence exemption. For example, if a property was owned for 2 years and only one year it was ordinarily inhabited by tax payer then as per “1+rule” the property qualifies for full principal residence exemption even though the owner lived there for one year only. This “1+ rule” will not be available for any disposition by the non-residents after October 3, 2016 Again, this is to promote the fairness in the tax system as many Canadians leave Canada for ever or for a long period of time and subsequently purchase the residential property in Canada with one Canadian immediate family member living in Canada. Under the existing rules the non-resident buyer or owner of the property was allowed principal residence exemption for the years either he was resident of Canada and living in that property or his (her) immediate family member was living in the property while the property owner was non-resident for tax purposes. However, now the non-resident owner will not be allowed to claim principal residence exemption for all the years he (she) non-resident of Canada for any property sold after October 3, 2016.

Bank account number to be provided on the t183 form that tax payer signs to authorize the tax preparer to file electronically.

In August 2016 CRA released a newer version of T183 a form that authorizes tax preparer to file electronically on behalf of the taxpayer. This newer version of the form has fields to provide the bank account number of the tax payer for a one time pre-authorized payment of income tax due. It is a question in the minds of the tax payer as to why this information is required by CRA and raising doubts in minds of taxpayers. Taxpayers are going to be unsure whether to provide the banking information to CRA or not. The good thing is that it is not mandatory but completely optional to provide the banking information on this form.

We hope you liked our blog on recent changes by CRA. We will appreciate your comments and will be glad to answer your questions.

Please note the information contained in this page must not be treated as a tax advice and a consultation specific to your tax situation must be received by either contacting Ish Jindal CPA Professional Corporation or your local Chartered Professional Accountant.