Court finds CRA unreasonable in ordering woman to pay back CRB

Jamie Golombek: A Federal Court judge found the CRA failed to consider taxpayer’s letter of explanation

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Some Canadians who received COVID-19 benefits in 2020 and 2021 continue to face an uphill battle in proving they properly qualified for them, especially if their pre-pandemic earnings are not verifiable.

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Take the case of a British Columbia resident who went to court in September in an effort to avoid repaying the Canada Recovery Benefit (CRB) payments she received during her unemployment.

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The CRB was introduced by the government in 2020 to provide income support to employed and self-employed Canadians who were affected by the COVID-19 pandemic and were not entitled to regular Employment Insurance benefits. It was the successor to the Canada Emergency Response Benefit program, and was available from Sept. 27, 2020, through Oct. 23, 2021.

To qualify for the CRB, a taxpayer must have had at least $5,000 (before taxes) of employment or net self-employment income in 2019, 2020 or in the 12 months before the date of CRB application.

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The taxpayer in this case earned $4,052 while employed by Dollarama Inc. from June 2019 until September 2019, when she stopped working to attend college in Vancouver. For the first two months of 2020, the taxpayer claimed she was self-employed, working as a “support worker/cleaning,” but she stopped working in March because of the pandemic.

She applied for the CRB in April 2020 and received payments from Sept. 27, 2020, through Feb. 27, 2021, at which point the payments ceased. In April 2021, she contacted the Canada Revenue Agency to find out why she had stopped receiving payments. The CRA representative said the agency did not think she met the income eligibility requirement of having earned at least $5,000 and asked her to send proof of her income to the CRA.

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The taxpayer sent in copies of invoices or receipts for her cleaning services, but this was insufficient for the CRA, which requested she send “more documents to prove her income in the relevant period.”

In a July 2021 telephone conversation, the taxpayer explained to a CRA agent that she was paid in cash for her cleaning services, and she used this cash for personal expenses rather than depositing the money. Thus, there were no bank statements showing such deposits.

The CRA rejected this explanation, issuing a “first review letter” that stated the taxpayer was ineligible for the CRB because she did not earn the requisite $5,000 of (self-)employment income in the prior periods. She was told she could request a second-level review if she did not agree, and was also told she would be required to repay the CRB payments she had previously received.

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In September 2021, the taxpayer wrote to the CRA arguing that the wording used on the agency’s website indicated an applicant for the CRB must have earned $5,000 “from one or more of the following sources,” and she did earn $5,000 from the combination of her Dollarama employment income and her self-employment cleaning income.

In February 2022, a different CRA officer confirmed the denial of the taxpayer’s CRB eligibility, maintaining she did not earn at least $5,000 of income during the relevant period. She was again told to repay the CRB payments she had received. The taxpayer chose to appeal this decision to Federal Court.

As in prior such cases, the court’s role is not to substitute its decision for that of the CRA officer, but rather to determine whether the CRA’s decision was “reasonable” considering the facts and evidence. A reasonable decision is “one based on an internally coherent and rational chain of analysis that is justified, transparent and intelligible in relation to the applicable factual and legal constraints.”

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In reviewing the CRA’s second-level decision, it became apparent to the judge that the taxpayer’s September 2021 letter was “inexplicably” not considered. The CRA replied that the taxpayer’s letter was not before the officer because it pertained to the first review and the first reviewer had already rendered a decision.

The judge called the CRA’s response “nonsensical.” That letter begins with the following sentence: “I am appealing your decision to deny me the Canada Recovery Benefits based on your conclusion that I did not earn $5,000 in the 12 months preceding my application.” The judge concluded this letter was “clear on its face that it was submitted in connection with the (taxpayer’s) request for … (a) second review.” The taxpayer’s letter should have been considered as part of the second level review and because it wasn’t, the judge felt the CRA’s decision was “procedurally unfair.”

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But the judge went even further to say the CRA’s decision was also unreasonable. The first CRA reviewer’s notes indicated the taxpayer was ineligible because she didn’t provide sufficient proof of her self-employment income. The first reviewer noted the taxpayer couldn’t provide documents other than the receipts she had already provided.

But the officer who conducted the CRA’s second-level review didn’t provide any notes to explain the rationale behind their decision, other than simply coming to the identical conclusion stated in the CRA’s first review letter that the taxpayer didn’t earn at least $5,000 of income. No explanation nor reason was given.

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This lack of reasonableness and transparency, combined with the CRA failing to consider the taxpayer’s September 2021 letter, led the judge to order that the matter be referred back to the CRA to be reconsidered by a different agent.

In so doing, however, the judge suggested the taxpayer (and the CRA) refer to another recently decided federal court decision that went through examples of acceptable proof of self-employment income. Many of these are taken from CRA’s own guidelines, and, beyond bank statements, may include: invoices for services rendered, documentation for receipt of payment, contracts, a list of expenses, proof of advertising and any other documentation that will substantiate $5,000 in self-employment income.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto.


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