More than a week after thousands of self-employed CERB recipients received a “massive shock” when they got letters from the Canada Revenue Agency saying they may have to pay thousands of dollars back, there is increasing evidence that even the agency’s own employees were confused about the eligibility requirements.
It also appears that the CRA quietly updated its own website after people began applying for the CERB benefits to add crucial information that was not originally provided.
The recent letters are the first indication many self-employed applicants have received that their eligibility depended on making at least $5,000 in “net” income in 2019 — meaning their income after expenses — rather than “gross” or total income.
Advocates say this wasn’t properly clarified in legislation, on government web pages, or by CRA employees. In fact, some CRA employees appear to have provided incorrect information.
In an email to the Star on Dec. 9, a CRA spokesperson said “there has been no change to this position during the life cycle of the CERB. This requirement was publicized on Canada.ca since the beginning.”
However, despite the CRA’s statement, an archived version of the CERB Q&A page, dated April 7, 2020 and accessed by the Star via the website Wayback Machine, does not make it clear that the $5,000 had to be net rather than gross income for self-employed applicants.
The requirement appears to have been added to the page some time after April 21 and before April 25, according to the archived pages available via Wayback Machine, even though the program was opened to applicants on April 6.
A Huffington Post article dated April 27 states that the CERB Q&A page had been “quietly” updated several days earlier, and that one of the many additions to the page was the requirement in question.
In a joint statement, the CRA and Employment and Social Development Canada responded that when the CRA refers to income for self-employed Canadians, it always means net income rather than gross income, consistent with how self-employed Canadians file their taxes.
“The Canada Emergency Response Benefit (CERB) was rolled out quickly in order to provide immediate income support to Canadians when they needed it the most, and has helped over 8.9 million people,” the statement reads.
“The CRA recently sent 441,000 letters to those individuals for which the CRA does not yet have the information needed to determine the status of the person’s eligibility. Individuals who determine they need to repay CERB are not required to do so by December 31, 2020. This is not a repayment deadline.”
As of publication time, the online landing page for CERB applications, which have been closed since Dec. 2, does not mention net income, gross income, or income before expenses; it only says applicants must have earned a minimum of $5,000 in employment or self-employment income before taxes.
Adding to the confusion, nine CERB recipients told the Star that they were told over the phone by CRA agents that the income eligibility requirement for self-employed applicants referred to gross, not net, income.
Tammy Seed is one of them. A holistic nutritional clinical practitioner whose business is conducted online, Seed saw her clientele dry up after the pandemic hit, and applied for CERB the first day she could, on April 6.
If it had been any other year, Seed would have made more than $5,000 in both net and gross income, she said. But in 2019 she incurred a number of one-time costs that pulled her net income below $5,000.
So a few days before applications opened, Seed said she called the CRA to make sure she was eligible. She said she told the agent she was a small-business owner, and told them exactly how much she had made, gross and net. The agent told her to apply based on her gross income, she said.
Wanting to double-check, Seed said she called again the next day, asked the same question, and received the same answer.
Seed applied for CERB and received the full $14,000. It helped her to feed her children, pay her mortgage and keep her business afloat, she said.
Then, in late November, she got the letter thousands of others have received — the CRA couldn’t confirm she qualified for CERB.
“The letter was a massive shock,” she said.
Seed said since receiving the letter she has spoken to six different CRA agents. Four of them outright told her eligibility was based on gross self-employment income, not net, she said. Two said it was net, but then told her she was right to conclude it was gross — one told her there was confusion among CRA agents themselves as to what was correct, she said.
She said the sixth CRA agent advised her to file a formal complaint, which she did, as well as to contact her local MP, which she did.
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Seed feels betrayed by the very system that was meant to prop her up during a difficult year. She’s also frustrated that CRA representatives themselves don’t seem to have had a clear answer.
“Then why … did the CRA agents not know?” she asked.
The statement from the CRA and ESDC said the CRA “takes every effort to ensure its call agent staff and its resources provide the right information that Canadians depend on, and continues to take efforts to do so.”
Fraser Simpson, CEO with Toronto firm Tax Mechanic, said near the beginning of the CERB eligibility period he called the CRA some 20 times on behalf of his clients to ask the same question: whether eligibility for self-employed people was based on gross or net income. He said he was given multiple answers; some agents told him net, some told him gross, and some told him they didn’t know.
Alison Griffiths, an author and former financial columnist for the Toronto Star, said she thinks even the most financially savvy would have found the CRA’s eligibility information unclear.
She said she called the CRA twice before applying for CERB to make sure she and her husband, both self-employed, were eligible. Her daughter also called with the same question, she said. Each time, they were told to apply based on their gross income, she said.
And it’s not just the CRA help line that appears to have given out conflicting information. One CERB recipient emailed their MP, Adam van Koeverden, to ask before they applied whether eligibility was based on gross or net self-employment income. The MP’s office told them it was gross in an April email the Star has viewed.
Van Koeverden said his office has heard from many constituents about the CERB eligibility confusion, that their concerns are being heard and he is continuing to advocate on their behalf.
“What’s clear is that this is an emergency program … and now we’re just ironing out the kinks,” he said. “Inevitably there’s going to be a small portion of people that have some difficulty with it.”
According to Statistics Canada, one in five (21.8 per cent) CERB recipients in September were either self-employed or had been self-employed in the preceding 12 months (though the portion whose net income is below $5,000 is an unknown fraction of that number).
The federal NDP critic for employment, workforce development and disability inclusion, Daniel Blaikie, called Thursday for an emergency debate on the subject, which was rejected by the speaker.
Later the same day, NDP Leader Jagmeet Singh wrote a letter to Prime Minister Justin Trudeau.
“These people did nothing wrong. They are artists and small-business owners. They are people forced into poverty by the pandemic,” the letter reads. It notes that early on in the pandemic, the government supported a motion that promised people who applied to CERB “in good faith” would not be penalized.
In an interview Friday, Singh said the self-employed people who applied using their gross income did so “in good faith.”
“They didn’t make a mistake, they applied. And it is in fact the Liberal government that made the mistake here,” he said.
Singh added that he feels the government should be spending its energy recovering funds from large corporations that have benefited from pandemic support money, instead of Canadians who netted less than $5,000 in a year.
He pointed to two long-term-care operators that received the wage subsidy (which the Toronto Star has also received) and also paid out millions in dividends to shareholders.
Kevin Dunn, an accountant in Peterborough, Ont., said he foresaw this issue from the beginning of CERB.
He read the Canada Emergency Response Benefit Act when it was released, and said he noticed it didn’t mention net or gross self-employment income, or income after expenses. It also didn’t refer to the Income Tax Act for a definition of self-employment income, he said.
While it’s true that self-employment income for tax purposes usually means net, Dunn doesn’t think the average person should be expected to know this.
Dunn said because self-employment income isn’t defined in the CERB Act, he thinks there could be a legal argument to be made, and added that he believes having the “net self-employment income” requirement included only on the Q&A page isn’t legally binding.
“I think, at the end of the day, the government kind of got themselves in a pickle here,” he added, because people will be angry with them regardless of whether they budge on this issue or not.
Rosa Saba is a Toronto-based business reporter for the Star. Follow her on Twitter: @rosajsaba
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