On Dec. 12th, CBC posted a story about a P.E.I. woman who was told to repay $18,500 in CERB by year’s end to avoid receiving a tax slip. She had based her self-employment income on Gross Income vs Net Income, explaining that nothing was available about the eligibility rules for CERB in print at the time she first applied defining those parameters (gross vs net). The interesting take on this is that her local Liberal MP, Charlottetown MP Sean Casey, is “advising people that they’re allowed to file an amendment to their 2019 tax returns, where they could shift some eligible expenses to another tax year or simply not claim them. That, he explained, could boost their declared net incomes and “retroactively make them eligible” for CERB.”
Considering this message is not supported in the ITA, as @snoplowguy beautifully articulated above, it will be interesting to see how this plays out. I concur that these decisions may land up in court. I wonder where MP Casey got his information from to suggest amending returns?
I thought that certainly wasn’t what I had read as far as retroactively changing expenses. And apparently she did quite well with her business in 2020.
A similar article published by global news this weekend quotes a Toronto tax lawyer, advising to do the same. He says taxpayers have no obligation to claim expenses and a “simple fix” is to submit a T1-ADJ to reduce expenses.
Further, this is a direct screenshot of the canada.ca website under CERB eligibility criteria. It’s in reference to the $1000 amount they can continue to earn but it is the ONLY reference on this page that describes how self employed income would be calculated and is in direct contradiction to CRA comments that self employed income should always be considered net of expenses.
I read the same article from the Tax Lawyer. The number of my clients coming up against this gross vs. net is growing daily, and it looks like the government is not planning on any form of relief. Last I read from them was “people should have understood that they always mean net earnings.”
I will be following this thread closely.
I had contacted 1-833-966-2099 in regards to the treatment of Net self employment qualifying income of $5,000 and the fair treatment of those taxpayers, whether they filed 2019 tax returns or were non filers. Based on the last Auditor General report of the Non/Filer program there are 3.2 million non filers. I asked how they would determine net income eligibility for non filer CERB applicants. After speaking to the officer, It would appear to me that non filers would only show invoices of minimum $5,000 GROSS income and not supply any expenses. This would mean that self employed would be treated differently based on whether they were tax filers or not. Just sharing.
How is it illegal to advise a client not to take discretionary expenses in order to meet CERB eligibility requirements? I’m pretty sure there is no provision in the ITA that says thou shall pay the highest taxes and receive the smallest amount of government benefits. Advising a client they have the option to not take discretionary expenses in order to meet CERB eligibility is just being a smart and competent advisor.
Any insight on the specific type of proof the CRA will require to confirm CERB eligibility if a client is relying on meeting the $5000 income requirement for CERB eligibility during January 2020 - March 15, 2020 given most self-employed individuals don’t produce quarterly income expenses (although the accounting software can provide these if necessary)?
My specific concern is expenses incurred in December 2020 might reduce a client’s net income below the 5,000 threshold if that client’s income is looked at on an annual basis, while during the first quarter of 2020 that client would have had a net income above the 2020 threshold.
I am assuming that you wish to start a discussion about how you disagree with Section 9 (and other sections) of the Income Tax Act?
If so, please provide details of your basis.
Given there is so much controversy in the news surrounding this and many critics blaming government error, I’m curious as to what you are advising your clients to do? Take a wait and see approach? Or start on a repayment plan with CRA immediately? Trudeau has clearly said not to worry over Christmas. Well Christmas is over now…
I don’t have any clients who fall into this category (that I’m aware of) but I think at some point these CEBA repayment demands for people who had more than $5000 gross self-employed income but less than $5000 net business income will be dropped. The government has no leg to stand on.
I seriously doubt the CRA will “forget” the CERB benefits repayments for those who may not have been eligible. I suspect some sort of “payment plan” satisfactory (more or less) to both parties will be established on a per-case basis.
Like most of these Emergency Benefits, the legislators seemed to throw these together without thinking things through except shovelling money out the door and scoring political points.
While one can’t argue with legislation, I will make a couple of opposing comments;
For the CRA;
They are trying to suck and blow at the same time. They want to use $5,000 Net Income (sales less expenses) in 2019 or in the last 12 months in order to determine whether an individual qualifies for any of the CERB. However, on the other hand, they want to use Gross Revenue (Sales only) of $1,000 as a benchmark of your “earnings” to determine if your income is low enough to qualify for CERB in any particular period. They use Gross Sales when it suits them and Net Income when it suits them.
For the Recipient:
How can a self employed individual that could only muster up “gross sales” of $5,000 in the last 12 months reasonably expect they should be entitled to $14,000 in CERB benefits?
It seems remarkable that our parents (and grandparents) were able to make it through 2 world wars and a 10 year depression without access to any CERB benefits from their government.
It appears that the CRA has even changed their mind about that point.
"The CRA insists that self-employment income has always been defined as “net, pre-tax income,” or gross income minus expenses. "
In other words, they can’t be referring to gross income for the $1000 per month benchmark because the word income always means net. I saw this exact statement in several articles, including this one:
I have one client who was undergoing cancer treatment for most of 2019 and had only returned to work in the fall. Originally I had told her to call CRA and explain the situation but after Trudeau’s big “don’t worry” speech, I am inclined to tell her to wait for an actual assessment.
It’s not my job to determine if someone deserves it or not. Just to advise my client on the best course of action from this point forward. Although I’m not sure myself what that even is. Wondering what my fellow professionals are doing.
I try to avoid dealing with CERB. I don’t know what the best action is from this point forward. When the time comes that a client wants to know what to do, I will look at the circumstances and go from there.
@snoplowguy
Just to add to your final comment… WW1 was followed by a worldwide Spanish flu pandemic. WW2 was followed by a Scarlet fever epidemic. At both these times there was no social safety nets available like those of today… or even 60 years ago.
And, let’s not forget… the Income Tax Act wasn’t even 100 pages long at the end of WW2.
Effectively, this has always been my perception of self-employment income and based my advice on it, as whether my self-employed clients were eligible for CERB benefits or not.
Whenever someone says “Income”, I want to know is it Gross, Net, Taxable, or Total. Those are all lines on a T1 tax return. Just saying “Income” is quite ambiguous.
Several officials continue to refer to the Coronavirus pandemic as a “war”.
After every war, we have experienced tremendous amounts of inflation; due primarily to massive spending & borrowing to finance the war, as well as rapid monetary expansion (printing money). Any of those things seem familiar?
In my local area, we already received news of increases in property taxes for 2021, contrary to pre-election promises of 2019.
Definitely sounds familiar !!!
The wise man Soloman wrote that there is nothing new under the sun - what was will be again - this is bound to continue until it all stops - even though he wrote millennia ago.
