Taxpayer is self-employed and has been semi-retired for a few years. When the pandemic hit, he says he called CRA and was told that to qualify for CERB, he should have made at least $5,000 in gross revenue in the prior year. He filed his taxes as usual. Gross income was consistent with prior years and over $5k, but after claiming expenses, net income on T2125 was less than $5k (also consistent with prior years).
His CERB payments have now been reviewed and CRA has asked him to pay back the amounts. He wants me to amend his return to NOT claim all of the expenses he had originally claimed so that his net income will be above $5k.
Obviously I won’t file a return I know to be incorrect. But my question is, is that even allowed? I know a lot of sole proprietors that don’t claim all of their expenses (mainly due to poor record keeping). But is a business required to claim all of their expenses?
You are not required to claim all your business expenses, however if the reason you don’t claim all of your expenses is for the purpose of defrauding, I’d say he would be skating on thin ice. It’s no different than not claiming all your expenses to inflate your income for the purpose of obtaining a mortgage or loan.
He has already reported those expenses to CRA.
There was a big controversy over this in late 2020 through 2021. Trudeau government kept waffling on it, saying that it was “always meant” to be NET income, but initial publications did say GROSS (or something to that effect). So, last I heard, if a taxpayer based their CERB eligibility on the initially published rules, they can use gross income (i.e. exclude expenses). How on earth can someone prove that? I have no idea.
Thanks. I thought I remembered something to that effect, so I just Googled it after I read your comment and lo and behold, CRA apparently says you can keep the CERB if you based your eligibility on gross income:
Seems like he can just use that to appeal.