On March 25, 2020, 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 announced the creation of the Canada Emergency Response Benefit (CERB). Following its initial announcement, the government expanded the CERB several times in response to the need for continued support during this pandemic, including its announcement on April 15, 2020 extending the eligibility rules for the CERB to include part-time and seasonal workers. Earlier this summer, the government announced an eight-week extension to the maximum eligibility period for the CERB, and more recently, on August 20, the CERB was further extended by an additional four weeks.
With many Canadians expected to exhaust their CERB benefits by the end of September, the federal government recently announced its plan to support those transitioning from CERB to EI and to provide additional ongoing income support to those Canadians who are ineligible for EI benefits, including those who are self-employed and those working in the gig economy. For more details regarding the plans announced on August 20, 2020, please read our accompanying Tax Alert, Federal Government Announces Measures to Support Canadians Transitioning from the Canada Emergency Response Benefit (CERB).
The CERB provides a taxable benefit of $500 per week, for a period of up to 28 weeks (24 weeks prior to the most recent extension), to those who have stopped working for reasons related to COVID-19. According to the CRA's website, this can include those:
- who have lost their job;
- are in quarantine or are sick due to COVID-19;
- taking care of others because they are in quarantine or sick due to COVID-19; and/or
- taking care of children or other dependents because their care facility is closed due to COVID-19.
Those who are eligible for the CERB will receive $2,000 every four weeks. Although income tax will not be deducted at source, the CERB must be reported as income on the recipient's income tax return for the 2020 tax year. Each payment of the CERB covers a four-week period from March 15, 2020 to October 3, 2020.
In order to be eligible for the CERB, an individual:
- must reside in Canada;
- must be 15 years of age or older at the time of application;
- must have stopped or will stop working for reasons related to COVID-19or are eligible for EI regular or sickness benefits, or have exhausted their EI regular benefits between December 29, 2019 and October 3, 2020 and
- If the individual is submitting for their first benefit period, they cannot have earned more than $1,000 in employment and/or self-employment income for 14 or more consecutive days within the four-week benefit period; or
- If the individual is filing for a subsequent benefit period, they cannot have earned more than $1,000 in employment and/or self-employment income for the entire four-week benefit period being claimed
- has not quit their job voluntarily; and
- has earned a minimum of $5,000 in income within the last 12 months or in the 2019 calendar year from employment or self-employment. This $5,000 amount may include maternity and parental benefits under the EI program and/or similar benefits paid in Quebec under the Quebec Parental Insurance Plan.
For the purposes of determining both the $5,000 income amount required for eligibility and the $1,000 of income that can be earned in respect of a four-week period, these will include among others:
- tips earned while working and declared as income;
- honoraria (e.g. nominal amounts paid to emergency service volunteers); and
- royalties (e.g. paid to artists).
It should be noted that pensions, student loans, and bursaries should not be included in determining these amounts. Non-eligible dividends count towards the minimum $5,000 in income required for eligibility and will also count towards the $1,000 income threshold for a four-week benefit period. Non-eligible dividends are dividends paid out of corporate income of a Canadian Controlled Private Corporation and taxed at the small business rate.
Based on the CRA's website, an individual may continue to earn up to $1,000 in respect of each four-week benefit period and still remain eligible for the CERB. This threshold appears to apply both to part-time workers and self-employed individuals. Self-employed individuals can receive income from their business in several ways, including as salary, business income, or dividends.
In determining their eligibility for the CERB:
- Owners who take a salary from their business should consider their pre-tax salary
- Owners who rely on business income should consider their net pre-tax income (gross income less expenses)
- Owners who rely on dividend income should consider this as self-employment income provided it comes from non – eligible dividends.
Note that an individual cannot receive both EI benefits and the CERB in respect of the same benefit period.
While applicants are not eligible for the CERB if they quit their job voluntarily, there is currently no requirement that individuals show that they are seeking and accepting employment opportunities, or returning to work when requested to do so by their employer, in order to qualify for the CERB. Instead, the government is encouraging all workers who are able to return to work to do so once circumstances allow, and is advising workers to use the tools available to assist in finding employment, including through Job Bank (Canada's national employment service). Applicants should keep in mind that they may be asked to provide additional documentation to verify eligibility for the CERB at a future date.
Applying for the CERB
A universal application for the CERB became available via a secure web portal on April 6th. To apply online, applicants need to have a CRA My Account. Applicants are also able to apply via an automated phone service. When beginning the application process, applicants are asked a series of questions to determine whether application for the CERB should be made through Service Canada and the EI program, or through the CRA. Note that those who have already applied for EI or for the CERB through Service Canada cannot apply for the CERB with the CRA.
It is important to note that an application for the CERB covers a single four-week period. Applicants who applied for the CERB with the CRA will have to confirm their continued eligibility for the CERB by reapplying for the benefit every four weeks, for a maximum of 28 weeks (or seven periods). Those that applied through Service Canada will be required to complete bi-weekly EI reports in order to confirm their eligibility for each benefit period.
Canadians are expected to begin receiving their CERB payments within 10 days of making an application. However, those who elect for direct deposit of the CERB will receive their payments within three business days. Payments will be retroactive to the recipient's eligibility date. Applications for the CERB will be accepted up to December 2, 2020.
Administrating the CERB
Administrative rules apply to those who are eligible for EI and have either already applied for EI benefits and are waiting for their claim to be processed, or who apply for EI after the CERB became available on April 6th. In such situations, the benefits received by these individuals will depend on their ability to meet the eligibility criteria as well as the date at which they became eligible for EI.
For instance, in cases where an individual became eligible for EI:
- Prior to March 15, 2020 — These individuals will have their claim processed under the pre-existing EI rules, and they will receive EI benefits and not the CERB.
- On or after March 15, 2020 — If the eligibility criteria for the CERB as noted above are met, these individuals will automatically receive the CERB, regardless of the fact that they have applied for EI benefits.
Where an individual is already receiving EI benefits in respect of the same eligibility period as the CERB, they will continue to receive EI benefits until the end of their benefit period. Where EI benefits end before October 3, 2020, an individual who meets the CERB eligibility requirements noted above can apply for the CERB after the end of their EI benefits period.
Returning or Repaying the CERB
The CRA will be verifying that individuals are eligible to receive CERB. In cases where claimants are found to be ineligible, they will be contacted to make arrangements to repay any applicable amounts. For instance, as part of the Canada Emergency Wage Subsidy, the CRA will be comparing employers' payroll records with information provided by CERB claimants to ensure that individuals who have returned to work and who have therefore become ineligible for the CERB repay those amounts.
An individual may also be required to repay the CERB if they returned to work earlier than expected, including being paid retroactively, or if they applied for the CERB and later realized that they were ineligible, or if they applied for and received the CERB from both the CRA and Service Canada in respect of the same eligibility period.
Options for returning or repaying the CERB are outlined on the CRA's website. These options depend on whether the individual has the original CERB cheque or if the individual was paid by direct deposit, as well as whether the individual applied for the CERB through the CRA or through Service Canada. Note that beginning May 11th, taxpayers who applied through the CRA are permitted to repay the CERB using My Account.
If you have lost income because of COVID-19, the CERB will provide temporary income support. Contact your BDO advisor if you have any questions about determining your eligibility and applying for the CERB.
The information in this publication is current as of August 26, 2020.
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.