Tax department claws back portion of COVID-19 benefits

It is uncertain how many Canadians knew their emergency benefits would be taxable. | File photo

The federal government has acted, in most cases, reasonably quickly to provide emergency funding to those in our economy who have been most disadvantaged by the COVID-19 pandemic.

To its credit, the government also moved promptly to fill in the gaps in its original decisions that left some Canadians out in the cold.

We now have another example of a quick response to a misstep, which was probably more than a little blip in the government’s track record.

In our last article we talked about the Canada Emergency Business Account loan program, which targeted the critical small business sector. It was intended to provide financing to bridge deficiencies created by the pandemic and related shutdowns to normal productive activity.

The original buffer was a $40,000 loan at zero percent interest for a three-year period, $10,000 of which would be forgiven if certain conditions were met.

When it was realized that the impact on the market was going to be longer than expected, the government boosted the program to provide another $20,000, or $60,000 overall. It also bumped the forgivable amount of the loan by $10,000, or $20,000 overall.

The fly in the ointment, however, is that despite the emergency nature of this support, the forgivable amount of the loan is still considered taxable income.

It is uncertain how many Canadians knew their emergency benefits would be taxable. The Canada Emergency Response Benefit (CERB), for one, is also taxable.

However, the government’s position is that those who had the greatest income losses from the pandemic would only have minor tax obligations.

It also acknowledged that Canadians might not be able to pay their 2020 taxes owed but will be given until April 2022 to do so, interest free.

But there was another controversy surrounding CERB. Some 441,000 CERB recipients, many of them self-employed, were informed they might have to repay the benefit if they applied using their gross rather than net income.

Citing confusing communications at the outset, the government agreed that those with taxable income not exceeding $75,000 in 2020 would indeed qualify and need not return their CERB payments. Those who had already returned the benefit would be repaid.

There are several other emergency payments that have a CRA lien on them. Some of them have a withholding tax from the grant, which is a dead giveaway there is a tax implication, but all of them have had a T4 slip attached to them for this tax season.

They include the Canada Student Emergency Benefit (CESB), Canada Recovery Benefit (CRB), Canada Recovery Caregiving Benefit (CRCB) and the Canada Recovery Sickness Benefit (CRSB).

To be fair, the government has a significant challenge tracking down fraud on these programs, but clawing back emergency benefits from those in need didn’t seem like the best way to balance the books.

Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: or 800-265-1002.

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