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CERB Eligibility for Self Employed

How will CRA verify the CERB eligibility for self employed individuals? For employees, there will be a modified T4 that will breakdown income by reporting period. However, for self employed individuals, there is no specific reporting to CRA (that I am aware of) that shows income and expenses by month.

Taxpayers will need to prove that they made NET self employment income of at least $5000 in 2019 or in the 12 month proceeding their CERB application AND that they did not earn more than $1000 in GROSS self employment income per each 4 week reporting period.

I have a client who has already received a letter from CRA stating that " Based on the records we have at this time, we cannot confirm that you meet this requirement." I believe that this is due to their 2019 NET self employment income being less than $5k.

I could re-file their 2019 return with fewer expenses as they were close to the limit but this would trigger a small amount of tax.

Anyone have any insight?

"I could re-file their 2019 return with fewer expenses as they were close to the limit but this would trigger a small amount of tax.
Anyone have any insight?"

In my last reading of the Act, that would be illegal on several grounds for both you and the taxpayer. :worried:

In addition to the consequences of those actions, it might have the added “benefit” to you of a disciplinary hearing at your local professional body. :fearful:

I think I would give that move a :-1:

Before I get into any legalities of your posted suggested option. CERB eligibility requires 5,000 in self employed income. The 5k can be in 2019 or the immediate 12 month period prior to collection of first CERB payment. So if your client earned 5k between March 2019 and February 2020 he/she would be eligible.

As to having insight, I have to echo @joe.justjoe1 comments. Refiling 2019 to make eligible by removing some expenses would be contrary to the ITA on several fronts and could put you in a very precarious position with CRA as well as potentially jeopardizing your professional status.

My suggestion is to prepare your client for the eventual fate of having to repay the monies he collected under CERB

I agree with the previous comments unless you were going to reduce CCA that had been claimed on the 2019 T2125.

Exactly Kevin. My thought was to reduce cca as that is a discretionary expense.

Alternatively I can show that my client made $5000 from March 1 2019 to Feb 29 2020. Just wondering what the sort of reporting CRA would require to show the monthly income/expenses.
Thanks

Well, one way is to just amend the T1 to reduce the CCA claim. The other way would be to produce an income statement showing that your client earned the requisite $5,000 in early 2020. You will want to make sure your client’s records are reliable enough to support this claim. I haven’t seen a letter similar to what you’ve quoted from but I assume your client will have to reply to that letter at some point with the information showing that they qualify.

Respectfully… We have all been impacted by Covid.

It is the responsibility of the bookkeeper, Accountant, Tax preparer, advisor ( whether with a professional designation or affiliation or not) to record to CRA ( via tax returns, ROEs, HST Reports, etc.) what the client did throughout the year.

As much as it pains us, we cannot alter the facts so that the client can obtain some type of government funding ( CERB, OAS Supplement, CCB, GST, etc.).

Our job is so to advise the client what they qualify for… if they didn’t realise it… not to change the numbers so that they can justify why they applied for a program that they did not qualify for.

Our heart goes out to those who do not qualify but we did not make the rules… it is the governments rule and we cannot just change them to ensure the client is happy.

IMO, you should be wary of this type of thing… as if an auditor realises you are willing to “tweak’ things for one client… your entire practice could be audited to see if you “tweak” for everybody.

Rachel

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Altering other expenses related to the business income is not the way to go but if a business-person reduces their CCA, after filing, to qualify for the CERB, what is unethical about that? It seems like the CERB was intended to apply to someone who makes that little income.

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I appreciate all your responses. To be clear, it was NEVER my intention to alter any facts or falsify information in any manner. CCA is a discretionary expense and as accountants we regularly use it to achieve a certain result for our clients. The difference here is that it’s after filing.

The CRA letter did not ask for anything right now. It was just a courtesy letter to please verify your eligibility. I thought I would get ahead of it as I’m not certain what reports from 2020 CRA will want to see. I typically do not prepare monthly income statements for this client and as they are a small supplier, there are no GST reports. Perhaps I will call them to verify.

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IF we are going to falsify records, we would not ask for advice here :rofl: :rofl: Isn’t it amazing how we always expect the worst!

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Spot On, Rachel

I have one small business that qualified for CERB based on their 2020 income up to the CERB qualifying period. I will be filing 2 T2125’s, one for 01 Jan to the initial qualifying period, and the next one to the remainder of the year. It will help CRA with an initial evaluation. I will also generate a monthly income and expense report for audit purposes and keep on file for any enquiries down the road.

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Thank you Douglas that’s good planning and very useful advice!

I contacted CRA and they indicated they may ask for deposit slips to verify income. Unlikely they will question the timing of expenses for this purpose.

Mary - I have a client that also is very close to the line. She will be over $5,000 net self employed income for the 12 months ended March 1, 2020 but only just and she collected $10,000 in CREB payments. When you called the CRA did they say anything about clawing back the CREB if the amount paid was more/considerably more than the net self employment income the taxpayer normally has? This particular client gets most of her income from rental income which also took a hit from covid-19 and pensions. Which line did you call to talk to someone that could answer your questions - just the general help line?

I called the CERB inquiries number 1-833-966-2099. But just warning you that they do NOT seem to have all their ducks in a row. The agent told me point blank that if I called 3 times I would get 3 completely different answers. It seems that I am not the only one confused with the whole net vs gross income thing.

In fact he told me with complete certainly that BOTH the $5000 requirement AND the $1000 monthly income maximum were both NET self employment income. Even after I pointed him to the Canada.ca website that says the $1000 is before deductions. He insisted that website was wrong and all his internal documentation stated that both requirements were “earned” income which by definition is NET take home pay. He insisted that “earned” income has to mean the same for both requirements and says he anticipates this ending up in tax court. :open_mouth:

So now I am slightly more confused. I feel bad for people who are close to those limits. But more importantly, how do we advise our clients when the communication is so unclear?

To answer your other question, there is no annual income limit on the CERB (other than the $1000 cap per qualifying period discussed above) but the CRB, CRSB and CRCB all have a clawback of $0.50 on the dollar of annual income “earned” above $38k. And for this purpose, earned income includes the CERB, rental income, investment income, pension, etc (line 236).

IC84-1 effectively denies a taxpayer from submitting an adjustment to a return to only request changes (an increase or decrease) to discretionary deductions such as “capital cost allowance” if more than 90 days has passed since the return was assessed or reassessed. The logic behind denying changes to discretionary deduction requests is to prevent retroactive tax planning.

You can request a change to CCA if a change to a non-discretionary item is also being requested, or if the CRA has reassessed the return (lets say in the case of an audit). For instance; if an expense has been denied you can request an offset with more CCA, or if you discover an expense that was previously omitted, you can reduce your claim for CCA. You just can’t request a change to a discretionary expense such as Capital Cost Allowance on its own unless there is no change to tax payable.

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Thank you, this makes sense!

It seems unlikely CRA would allow a change for the simple purpose of tax planning for various govt programs.

For those like myself who read but do not regularly contribute… we value your research and I thank you for your knowledgeable contributions… as well as all the others whom are in the know and quote the various parts of the act.

In my head and heart, I feel I know the answer but it is very reassuring to have the research behind it.

Rachel

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Agreed re the research. It’s very helpful to have such knowledgeable people on this board. Thank you!

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Yes, agreed again. Thank you to those who continuously share your experiences and knowledge in this forum. I find it a valuable asset to my business. Many thanks! :grinning:

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