Tax Alert – Federal Government Announces changes To Recovery Benefits

August 04, 2021

The federal government continues to announce extensions to recovery benefits (the Canada Recovery Benefit, the Canada Recovery Sickness Benefit, and the Canada Recovery Caregiving Benefit) in recognition of the ongoing need for income support during the COVID-19 pandemic.

Following an initial extension of the recovery benefits in February 2021, the 2021 federal budget subsequently proposed measures to further extend two of the three recovery benefits. These changes received royal assent on June 29, 2021. On July 30, 2021, the federal government announced that it will be extending the amount of time that the recovery benefits are available, as well as increase the maximum number of weeks that the Canada Recovery Benefit can be claimed.

Updates to the EI benefits program

On March 17, 2021, legislation was enacted to increase the number of weeks of EI regular benefits available to workers to a maximum of 50 weeks for claims established between Sept. 27, 2020 and Sept. 25, 2021.

That legislation also reduced the 2020 earnings threshold applicable to self-employed workers opting into the EI program to access special benefits to $5,000 from $7,555. This change applies for claims established from Jan. 3, 2021 and until Sept. 25, 2021.

Previously, the government announced the following changes to EI benefits, which became effective on Sept. 27, 2020:

  • EI premium rate freeze: The government announced that it is freezing the EI premium rate for employees at the 2020 level of $1.58 per $100 of insurable earnings for two years. The rate for employers, which is 1.4 times the employee rate, will also remain frozen at $2.21 per $100 of insurable earnings over the same period.
  • Minimum benefit rate: As of Sept. 27, 2020, all new EI claimants will receive a minimum benefit of $500 per week (or $300 for extended parental benefits). Initially (on Aug. 20, 2020), these amounts were set at $400 per week ($240 for extended parental benefits), but the government later increased the minimum benefit rate to align it with the weekly benefit rate for the new Canada Recovery Benefit (see below).
  • Hours credits to enhance access to EI benefits: The government is allowing a one-time insurable hours credit of 300 insurable hours for regular and work sharing benefits (job loss) and 480 insurable hours for special benefits (sickness, maternity/parental, compassionate care or family caregiver) to assist those prevented from accumulating the number of insurable hours normally required because of the COVID-19 pandemic. Hours credits will be made retroactive to March 15, 2020 for claimants who wanted to transition early from the Canada Emergency Response Benefit (CERB) to EI maternity, parental, compassionate care, family caregiver, or work-sharing benefits, but were not able to satisfy the hours requirement. The qualifying period will also be extended for these claimants. This credit will be available for new EI claims for the period of one year.
  • Minimum EI unemployment rate: In order to lower the hours required to qualify for EI regular benefits, the government is implementing a minimum unemployment rate of 13.1% for all EI economic regions. Fixing a minimum rate at 13.1% will set a uniform eligibility requirement for EI regular benefits at 420 hours of insurable employment (before the hours credit is applied), provide a minimum entitlement of 26 weeks of regular benefits, and set 14 as the number of best weeks of earnings used in the calculation of the weekly benefit rate. This measure will be in effect for one year, starting on Aug. 9, 2020.
  • EI fishing benefits: The government is implementing certain temporary measures to benefit self-employed fish harvesters who rely on EI fishing benefits in the off-season.

On July 30, 2021, the federal government announced that the minimum weekly EI benefit rate will be set at $300 per week for EI claims established between September 26, 2021 and November 20, 2021. This is to match the rate paid under the Canada Recovery Benefit for new claims made after July 17, 2021 (see below).

Recovery benefits

To ensure that Canadians who do not qualify for EI benefits continue to receive income support as the COVID-19 pandemic persists, the government introduced three recovery benefits. Details of each of these benefits— including the most recent extensions—are below:

1. Canada Recovery Benefit (CRB): The CRB provides a taxable benefit amount of $500 per week for up to 54 weeks to those workers who are ineligible for EI, including those who are self-employed or who work in the gig economy. Initially available for a maximum of 26 weeks, the CRB was extended to 38 weeks in March. As part of its 2021 budget, the federal government announced a further extension of the CRB by an additional 12 weeks, for a total of 50 weeks of support. The first four weeks of this 12-week extension will be paid at $500 per week and the last eight weeks will be paid at a reduced rate of $300 per week. On July 30, 2021, the government announced that it will increase the maximum number of weeks to 54 weeks, up from 50 weeks. These additional four weeks will be paid at $300 per week. All new CRB claimants that apply after July 17, 2021 will receive $300 per week up to Oct. 23, 2021.

The CRB is available to those that are resident and present in Canada, who:

  • are at least 15 years old and have a valid Social Insurance Number (SIN);
  • have stopped working due to the COVID-19 pandemic and are available and looking for work, or who are working and have had a 50% reduction in their average weekly income as a result of COVID-19;
  • did not apply for or receive the CRSB, CRCB, short-term disability benefits, worker’s compensation benefits, EI benefits, or Quebec Parental Insurance Plan (QPIP) benefits;
  • are not eligible for EI;
  • had earned income from employment or self-employment income (after deducting expenses) and/or maternity or parental benefits (from EI or similar QPIP) of at least $5,000 in 2019; 2020, or in the 12 months before the date of application; and
  • have not quit their job or reduced their hours voluntarily.

Recipients of the CRB will be required to reapply every two weeks and attest that they continue to meet the requirements. Claimants will also need to look for and accept work when it is reasonable to do so in order to remain eligible. Claimants are permitted to earn income from employment and/or self-employment while receiving the CRB; however, they will be required to repay 50 cents of the benefit for each dollar of their annual net income above $38,000 in the calendar year, to a maximum of the amount of benefit they received.

2. Canada Recovery Sickness Benefit (CRSB): The CRSB provides a taxable benefit of $500 per week for up to four weeks to eligible workers who are unable to work because they contracted COVID-19, have an underlying condition or other illness that would make them more vulnerable to COVID-19, or are required to self-isolate for reasons related to COVID-19.

This benefit is available to workers who:

  • reside and are present in Canada;
  • are at least 15 years old and have a valid SIN;
  • are employed or self-employed at the time of application;
  • did not apply for or receive the CRB, CRCB, short-term disability benefits, worker’s compensation benefits, EI benefits, or QPIP benefits; and
  • earned at least $5,000 of income from employment, self-employment (after deducting expenses), and/or maternity or parental benefits (from EI or similar QPIP) in 2019, 2020 or in the 12 months before the date of application.

Workers cannot claim the CRSB if they received other paid sick leave from their employer for the same benefit period. In addition to meeting the eligibility criteria for this benefit, workers will need to have missed a minimum of 50% of their scheduled work in the week for which they claim the benefit. A medical certificate will not be required to qualify.

3. Canada Recovery Caregiving Benefit (CRCB): The CRCB provides a taxable benefit of $500 per week, for up to 42 weeks per household, to eligible Canadians unable to work because they need to provide care to children or support to other dependents who have to stay home because of COVID-19. Like the CRB, the CRCB was initially available for a maximum of 26 weeks. This benefit was subsequently extended to 38 weeks and then again to 42 weeks. The benefit of $500 per week remains unchanged.

To be eligible for the CRCB, individuals must:

  • reside and be present in Canada;
  • be at least 15 years old on the first day of the period for which they apply for the benefit;
  • have a valid SIN;
  • have earned at least $5,000 of employment income, net self-employment income, and/or maternity and parental benefits (from EI or QPIP) in 2019, 2020, or in the 12 months before the date of application;
  • have been unable to work for at least 50% of their normal scheduled work within a given week because they are caring for their child (under the age of 12 on the first day of the period for which the benefit is claimed), or a family member who requires supervised care, because of one of the following reasons:
    • their school, daycare, or care facility is closed or unavailable due to COVID-19;
    • they contracted COVID-19 (or are experiencing symptoms of COVID-19), are required to isolate, or have been advised by a medical professional that they are at high risk if they contract COVID-19; or
    • their regular caregiver is not available due to reasons related to COVID-19;
  • not be in receipt of paid leave from an employer in respect of the same week; and
  • not have applied for or received the CRB, CRSB, short-term disability benefits, worker’s compensation benefits, EI benefits, or QPIP benefits in respect of the same period.

Two members residing in the same household cannot be in receipt of the benefit for the same period. Workers would apply after the period in which they are seeking income support and would attest that they meet the requirements.

The CRB, CRSB, and CRCB became effective for the period beginning on Sept. 27, 2020. Initially legislated to end on Sept. 25, 2021, the federal government announced on July 30, 2021 that it will be extending the availability of the CRB, CRSB, and CRCB until October 23, 2021.

The CRA is administering the recovery benefits and Canadians can apply through the CRA’s My Account. Applications for the CRSB and CRCB opened on Oct. 5, 2020 and applications for the CRB opened on Oct. 12, 2020. Note that, unlike the CERB, the CRA will withhold 10% tax at source from all recovery benefit payments. Each period must be applied for separately. Applications must be made within 60 days after the end of the period to which the benefit relates and are subject to verification by the CRA. Verification may result in an increase in processing time by up to four weeks.

The eligibility criteria for the recovery benefits were amended, effective on Jan. 3, 2021, in order to prevent international travelers who are required to quarantine upon arrival to Canada from qualifying for any of the CRB, CRSB or CRCB during their quarantine period. Individuals who have completed their mandatory quarantine may be eligible to claim these benefits for subsequent periods, assuming all other eligibility criteria are met.

Individuals who knowingly make a false or misleading representation while applying for a recovery benefit, or who knowingly apply for and receive a benefit that they know they are not eligible for, may be subject to penalties. Specific repayment procedures are in place for those individuals who applied for and received a benefit by mistake.

To avoid having to pay tax on benefit payments received in 2020 that they are not eligible for, the CRA encouraged individuals to repay such amounts before Dec. 31, 2020.

The 2021 federal budget announced measures to temporarily allow individuals the option to deduct a repayment of COVID-19 benefits—including repayments of the CERB, CRB, CRCB and CRSB—against their income for the year in which the benefit was received, rather than the year in which it was repaid. This option is available for benefit amounts repaid before 2023, and any individual who makes a repayment, but who has already filed their income tax return for the year in which the benefit was received, is able to request an adjustment to the return for that year.

More information about these benefits can be found on the government’s COVID-19 Benefits and Services hub.

The CERB

The CERB, which initially provided a taxable benefit of $500 per week to eligible applicants, was extended in the early summer of 2020 by an additional eight weeks—from a maximum of 16 weeks to 24 weeks—and then again on Aug. 20, 2020, for a total maximum eligibility period of 28 weeks. The CERB program has ended.

For more details regarding the CERB, please read our Tax Alert, The Canada Emergency Response Benefit (CERB) in Response to COVID-19.

Transitioning from CERB to EI benefits

Canadians who received CERB benefits through Service Canada, who are eligible for EI, and continue to need income support were automatically transitioned (as of Oct. 3, 2020) to the EI program once the CERB program ended. Those who received the CERB from the CRA and who believe that they are entitled to EI benefits after exhausting their CERB benefits were able to apply for EI benefits through Service Canada starting Sept. 26, 2020.

Summary

These changes may impact you if you transitioned from the CERB to other forms of income support after Sept. 26, 2020 or if you require income support as a consequence of COVID-19. Contact your BDO advisor if you have any questions about applying for EI benefits or for the Canada recovery benefits.


The information in this publication is current as of August 4, 2021.

This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.

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