CERB repayment: What are your options if you can’t afford it?

Click to play video: 'Finance expert provides CERB repayment advice'
Finance expert provides CERB repayment advice
WATCH: Hundreds of thousands of Canadians face the prospect of having to repay the money they got from the Canada Emergency Response Benefit (CERB). – Dec 20, 2020

The federal government has no plans to forgive CERB debt for ineligible recipients despite acknowledging it provided incorrect information about some of the qualifying criteria for the emergency benefit for a few weeks after its initial rollout.

In recent communication with the media, Employment Minister Carla Qualtrough confirmed the Trudeau government is not considering the option of letting all applicants who made honest mistakes off the hook.

READ MORE: Received CERB payments? Watch your mailbox for T4A tax slips from the CRA

This means if you received the CERB but turned out not to be eligible for it, you’ll have to repay the money. But what happens if you can’t afford to?

The Canada Revenue Agency (CRA) began sending out T4A tax reporting slips to emergency benefit recipients on Jan. 11. If you didn’t already repay any funds you didn’t qualify for by the end of 2020, you may have to pay income tax on that money.

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The CRA says any taxes paid on your 2020 return for CERB amounts you repaid “will be adjusted after you file your 2021 taxes.” But that means you may have to wait until 2022 for those tax adjustments.

Those taxes will add to the financial stress of many who already face having to pay back thousands of dollars worth of CERB, according to Nancy Snedden, senior vice president at BDO.

“That’s a huge impact to have to be carrying that debt … not knowing if, or how much, you are going to be able to recoup,” Snedden says.

As a first step, if you can’t repay in full, Snedden recommends reaching out to CRA to find out exactly how much you need to pay back and whether you can set up a payment arrangement.

Click to play video: 'NDP MP questions why CERB retroactive rules appear to have changed'
NDP MP questions why CERB retroactive rules appear to have changed

Setting up a payment arrangement with CRA

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For benefit applicants who must repay funds due to errors in good faith, the government has indicated there will be no penalties or interest. And when repaying the CERB would cause significant financial hardship, “we will work with impacted individuals on a case-by-case basis,” the CRA told Global News in a statement, adding it expects to be able to provide more details on this in the coming weeks.

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But Snedden worries some Canadians who must return CERB funds may not be able to afford even the flexible repayment options offered by CRA. For many indebted Canadians living paycheque to paycheque, this could be the straw that breaks the camel’s back, she says.

“They’re already struggling to meet their minimum [debt] payments. One additional debt could make or break it for them,” she says.
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If a payment arrangement with CRA is not enough, licensed insolvency trustees say Canadians may be able to discharge all or part of their CERB debt by filing for insolvency.

CERB debt in a consumer proposal or bankruptcy

Whether emergency benefit repayments can be included in a consumer proposal or bankruptcy “hasn’t been tested, unfortunately, and there is nothing in the legislation that would give you any direction one way or another,” says Grant Bazian, president of MNP’s insolvency practice.

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READ MORE: CERB repayments — What are taxpayers supposed to do when even tax pros aren’t sure?

However, he says, Canadians can typically get rid of debt arising from taxes and government benefits by filing for insolvency. Usually, the exception to this are cases where the government believes the debt is the result of fraud.

“If they think there’s some sort of malfeasance or misrepresentation, they may not let [debtors] off the hook and they may object to their discharge from bankruptcy,” Bazian says.

With CERB, the government will likely look at insolvency applications individually and decide on a case-by-case basis, he predicts.

“If this was an honest mistake, with no fraudulent intent involved and you just don’t have the ability to repay, it should be a debt that is dischargeable in a bankruptcy or a consumer proposal,” Snedden says.

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In a consumer proposal, debtors generally offer their creditors to pay back less than the principal owed. While there are other options to negotiate with creditors, in a consumer proposal you only need 50 per cent of creditors to agree to the offer for it to become legally binding for all of them.

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A bankruptcy is also a legally binding process. You generally don’t get to keep your assets in a bankruptcy proceeding, but there are some important exceptions. For example, depending on what province you live in, you may be able to keep some of the equity in your home, your car, the savings in your Registered Retirement Savings Plan (RRSP), or work-related tools.

Only licensed insolvency trustees can administer a consumer proposal or bankruptcy in Canada.

READ MORE: By the numbers — How to reduce your debt when you can’t repay

In December the CRA sent out 441,000 “educational” letters advising emergency benefit recipients it couldn’t verify their eligibility and they may have to pay back all or some of the money.

There are a number of reasons why Canadians may be deemed ineligible, including having applied for and received the same benefit through both CRA and Service Canada. But among those contacted by CRA are CERB recipients who applied for federal aid based on having at least $5,000 in gross income from self-employment in 2019 or in the 12 months prior to applying. The CRA later clarified the $5,000 threshold referred to net income — or income after expenses — for self-employed applicants.

The CRA has acknowledged there was “unclear communication” on who was eligible for the CERB in the first few days after the program was launched.


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