As part of its plan to address the needs of workers and self-employed individuals who have lost their source of income as a direct result of the COVID-19 pandemic, the federal government created the CERB (Canada Emergency Response Benefit). The CERB provides a taxable benefit of $500 per week, for a period of up to 16 weeks, to those who have stopped working for reasons related to COVID-19.
A comprehensive description of the CERB, eligibility criteria, how to apply for the benefit, and the related administrative aspects, can be found here.
CERB impact on an IRB of an employed claimant
An IRB (Income Replacement Benefit) offers payments to someone who meets certain eligibility criteria at the time of a motor vehicle accident and is unable to work because of the accident—or fits within these parameters as a result of uncontrollable circumstances like the COVID-19 outbreak.
As the CERB is taxable and applies to wage earners, as well as to contract workers and self-employed people who would not otherwise be eligible for Employment Insurance (EI) benefits, it would appear to have the look and feel of pre- and post-accident income from employment for IRB purposes. The SABS (Statutory Accident Benefits Schedule) does not specifically address this; however, subsection 4(1) of the SABS indicates the following:
[…] “gross employment income” means salary, wages and other remuneration from employment, including fees and other remuneration for holding office, and any benefits received under the Employment Insurance Act (Canada), but excludes any retiring allowance within the meaning of the Income Tax Act (Canada) and severance pay that may be received.
As such, it would appear that the CERB falls under “other remuneration from employment,” despite not actually being paid by the employer. Similarly, the subsection 4(1) definition specifically includes EI benefits, which individuals receive by virtue of employment and, therefore, which would also appear to indicate that the CERB, somewhat akin to EI, should be reflected in the calculations of pre- and post-accident incomes from employment for IRB purposes.
An individual cannot receive both EI benefits and the CERB in respect of the same benefit period. So, logic would dictate that they should also not receive both an unreduced IRB and the CERB in respect of the same period of unemployment. Although there are rules in place whereby an individual should not be in receipt of both EI benefits and an IRB in respect of the same period of unemployment, it would appear that the eligibility criteria for the CERB only specifies that the individual not be in receipt of employment or self-employment income in excess of $1,000 per month for the same period of reduced or unemployment—with no reference to IRBs.
The deduction of the CERB in the calculation of an IRB pursuant to subsection 7(3) of the SABS would prevent overcompensation for the same loss of income.
CERB impact on an IRB of a self-employed claimant
From the perspective of a self-employed person, it would appear that they may have to demonstrate a loss of income to get the CERB. However, other than confirming that eligibility requirements have been met, the nature and extent of the additional documentation a self-employed person may be asked to provide to verify eligibility for the CERB is not known.
In any event, receipt of the CERB by a self-employed person could be akin to receiving benefits from a business interruption policy, which is reflected in the profit and loss statement of a self-employed person for income tax purposes. This is documented as either revenues or a reduction in expenses, and, as such, would be reflected in the calculations of pre- and post-accident incomes from self-employment for SABS purposes, pursuant to subsection 4(3) and consistent with subsection 4(4) of the SABS.
However, it is unclear if this is how the government will want this to be reflected for personal income tax purposes. It may well be that a separate line will appear on 2020 personal income tax returns for the CERB, regardless if someone is employed or self-employed, the same way there's a separate line to report EI benefits. In this case, it would appear that an otherwise self-employed claimant in receipt of the CERB will also have “other remuneration from employment” for SABS purposes, despite receiving these benefits by virtue of their self-employment.
COVID-19 impact on an IRB of a self-employed claimant
The other issue which is going to arise during this pandemic with self-employed claimants is paragraph 7(2)(2) of the SABS—highlighting to what extent we will be adding 70% of weekly post-accident losses from self-employment incurred as a result of the accident to the IRB in this COVID-19 period.
For example, a self-employed restaurant owner who has been required to close their business as a result of COVID-19 will be incurring losses from their self-employment, which they would have incurred regardless of whether or not they were in a motor vehicle accident. In these cases, it may well be that no amounts will be included in the calculation of their IRB, pursuant to paragraph 7(2)(2) of the SABS.
However, if these self-employed claimants are also in receipt of the CERB and we characterize this CERB as post-accident income from employment (which is government assistance to mitigate their business loss), fairness would dictate that we also reflect their post-accident losses from self-employment in the calculation of their IRB.
COVID-19 impact on all claimants
There may also exist the unfortunate situation of being a CERB recipient at the time of a motor vehicle accident, on top of being unable to work because of the virus. In such instances where it would appear to be appropriate to include the CERB in the calculation of their pre-accident income for IRB purposes, their ongoing receipt of the CERB could appear to constitute a “temporary disability benefit,” pursuant to subsection 47(3) of the SABS. As such, it would also appear to be appropriate to deduct the CERB in the calculation of their IRB, similar to the deduction permitted pursuant to subsection 47(1) of the SABS.
At this juncture, the maximum claim period for the CERB is four months. Let's hope we all safely see the end of this crisis soon so the impact of the CERB on the calculation of IRBs is minimal. In the meantime you may wish to seek a legal opinion in the matter of the impact of the CERB on the calculation of an IRB. Our team would be happy to discuss.
Contact
Janet L. Olsen, CPA, CA, CFE, CFF, Partner, Forensics