CRA sending out letters about CERB to taxpayers: What you need to know


Jamie Golombek: CRA is sending out letters that are sure to set off a flurry of tax objections, and, in some cases, lead to litigation

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The Canada Revenue Agency last week began issuing letters to various taxpayers who received the Canada Emergency Response Benefit (CERB) back in 2020, asking them for additional information to support their entitlement to the pandemic benefit.

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You may recall the CERB was the first pandemic support widely available to individuals, and it lasted until October 2020 when it was replaced by the Canada Recovery Benefit (CRB). Eligible individuals could receive $500 per week, to a maximum of 28 weeks, provided they earned at least $5,000 of net income in the prior year , and earned less than $1,000 during the period in which they claimed the CERB.

The letters are specifically geared towards individuals for whom the CRA believes earned more than $1,000 during the periods in which they claimed CERB. The CRA pointed out that individuals who have received this letter have not automatically been determined to be ineligible, but it “simply … does not have the necessary information” to confirm their entitlement.

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The CRA is asking these individuals to send in proof of their earnings during the CERB periods. Requested documents include copies of bank statements showing their income, pay stubs for the relevant periods, a letter from their employer confirming their income and when it was earned, and an amended 2020 T4 slip that breaks down the income by CERB period.

CERB recipients who are unable to verify their eligibility for the benefit will be required to repay it. But, in the words of the CRA, if they applied “in good faith,” they won’t be charged with penalties or interest.

These letters are sure to set off a flurry of tax objections, and, in some cases, lead to litigation, where taxpayers who didn’t fully understand the rules find themselves squaring off against the agency to try to hang onto their pandemic-related benefits. An example of the types of tax disputes we may soon start to see with some frequency can be found in a recent motion before the federal court.

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A Cambridge, Ont., taxpayer filed for an extension of time to file an application for a judicial review of the CRA’s April 30, 2021, decision that concluded he was ineligible for the CRB in 2020 because he didn’t earn $5,000 of income in the prior year.

The CRA provides a two-tier administrative review process for requests. If you submit a request for a review, the CRA will conduct a first review and provide its decision in writing. If, after having received this decision, you feel the CRA did not properly exercise its discretion in considering the first request for review, you can request a second review, in writing.

The Canada Revenue Agency headquarters in Ottawa.
The Canada Revenue Agency headquarters in Ottawa. Photo by Errol McGihon/Postmedia

This second request requires you to list the reasons you disagree with the CRA’s decision. For example, not all information was considered, or perhaps certain facts or details were missing or misinterpreted or not considered in their proper context. You would also send in any relevant new documents, facts and correspondence.

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Here, the taxpayer, following the receipt of the CRA’s decision, amended his 2019 tax return with the assistance of a local tax preparation company. His revised 2019 tax return showed self-employment gross income of $6,850, and net income of $5,390. He filed this amended return in June 2021, requesting a redetermination of his eligibility for the CRB.

In August 2021, the CRA told him over the phone that it refused to reassess his eligibility, referring to its April 2021 review as a “second-level review.” The taxpayer would have to apply to the court and seek a judicial review to determine whether the CRA’s decision was reasonable.

The problem, however, was that by this time, the taxpayer had missed the 30-day deadline to seek a judicial review of the CRA’s April 30 decision. Fortunately, the court has the discretion to extend this deadline. In considering whether granting an extension of time is “in the interests of justice,” the main factors are whether the taxpayer has demonstrated a reasonable explanation for the delay, that they intend to pursue their application, and that the application itself has some merit.

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The taxpayer based his extension request on his amended 2019 tax return, which reported net self-employment income of $5,390, as well as on “significant personal medical issues.” In this case, “The real question is whether the application may have merit,” the judge wrote.

The judge felt it did and concluded the CRA had not yet done its second-level review. The taxpayer’s initial request was denied, and that was the first-level review. The taxpayer then took steps to revise his taxes to submit to the CRA. The revised tax information, as well as further information on the taxpayer’s health issues, are “relevant new documents and facts” that need to be considered at a second-level review. “It does not appear that the (taxpayer) was afforded this second tier review,” the judge concluded.

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Accordingly, on Jan. 5, 2022, the judge granted the taxpayer an extension to file his application for judicial review, which he subsequently did on Jan. 18. Whether or not the court will ultimately order the CRA to reconsider the taxpayer’s case will be decided at a full trial in the months ahead. Stay tuned …

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

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