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‘It didn’t seem right’: Class-action lawsuit proposed over CERB repayments

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The federal government’s mixed messages around eligibility for the Canada Emergency Response Benefit (CERB) are the focus of a proposed class-action lawsuit on behalf of retired Canadians with self-employment income who may be asked to repay the money they received through the emergency benefit.

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

The representative plaintiff Janet Ann Ryan, a Mississauga, Ont.-based retired Montessori teacher, is among many Canadians who are worried they’ll have to return up to $14,000 worth of CERB payments. In late 2020 the Canada Revenue Agency (CRA) sent out 441,000 letters saying an eligibility condition to have income of at least $5,000 in 2019 or in the 12 months prior to applying refers to “net pre-tax income,” or gross income minus expenses, for self-employed individuals. The letters left many of the recipients dumbfounded as several official CERB guidelines made no mention of the net-income requirement.

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Ryan, who says she carefully reviewed the CERB instructions and applied based on having earned $5,000 in gross income in 2019 from tutoring, says she was “shocked” to receive one of the CRA letters.

“It didn’t make sense,” she says. “It didn’t seem right.”

Toronto lawyer Jan Weir, who launched the lawsuit for Ryan, says he hopes it will help not just pensioners with part-time self-employment income but all CERB recipients affected by the government’s poor communication over net vs. gross income.

Read more: What to expect from your 2021 taxes and how to prepare

“If the court interprets this the way I expect that they will, it’s for everyone,” he told Global News.

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Global News has found only one official page on the CERB that specifies self-employment income should be intended as net income. And that information did not appear for weeks after the initial rollout of the federal emergency benefit in April, a search of internet archives indicates.

Read more: Received CERB payments? Watch your mailbox for T4A tax slips from the CRA

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.

The proposed class-action suit doesn’t seek financial compensation other than legal costs but asks that the government stop demanding repayment from those represented.

Although the proposed lawsuit has yet to be certified, a process that usually takes several months, Weir says he believes it will give CRA “a reason to hold off” on pursuing CERB recipients who don’t have at least $5,000 in net self-employment income.

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The CRA told Global News it does not comment on matters before the courts. It added it is “sensitive to cases of hardship for Canadians still facing the financial impacts of COVID-19.”

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Green Party MP Paul Manly recently presented a petition to the House of Commons asking that the government allow self-employed CERB recipients to use their gross income before expenses when determining eligibility for the benefit.

Allan Lanthier, a chartered professional accountant who has been an adviser to the Department of Finance and the CRA, says the proposed lawsuit may put additional pressure on the government to decide how it’s going to handle the issue.

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“Every day that goes by, there are thousands of people that remain under stress,” he says. “And the delay is just unacceptable.

But Jasminka Kalajdzic, a law professor and director of the Class Action Clinic at the University of Windsor, says a class-action lawsuit may be a lengthy way to get the courts to weigh in on the matter.

While it’s not unusual for litigation to be brought against the government over questions of statutory interpretation or how policies are enacted, it’s rare to see a class-action lawsuit that does not ask for a cash payment, she says.

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A speedier way to bring the issue before the court may be for a single individual to launch a lawsuit, with an understanding that the government would treat the process as a test case and be bound by the court’s interpretation, Kalajdzic says.

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Under this scenario, “if the court decides … the government is wrong as a matter of law, they will change their administrative process and stop demanding the CERB repayment,” she says. “And the case is over.”

This process would also present a lower financial risk for the government, which wouldn’t have to worry about potentially footing an expensive legal bill for a class-action lawsuit, Kalajdzic adds.

Read more: CRA says it will determine if artistic grant money counts as income for CERB case by case

In Mississauga, Ryan, who normally relies on tutoring to supplement her modest retirement income, is holding out hope she won’t have to repay the $14,000 she received from CERB. Those funds, which she described in an online statement as a “godsend,” helped her pay for the first and last month of rent when she had to move to a new place during the pandemic. It allowed her to pay off some debt and help friends who were facing financial difficulties.

If she had to return the benefit, she says, “I would have to borrow the $14,000.”

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