Canada Emergency Response Benefit (CERB) and Personal Taxes
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What You Need To Know About Canada Emergency Response Benefit (CERB) And Taxes

What you Need to Know about Canada Emergency Response Benefit (CERB) and Taxes

It’s hard to think of the future when you’re trying to make ends meet. But that makes it more important than ever to have a conversation about the Canada Emergency Response Benefit (CERB) and taxes, because CERB will show up on your taxes. Here’s how.

The coronavirus pandemic upended our understanding of day-to-day life. Unemployment is skyrocketing in some provinces, from 5% to 85% in some areas. Many Canadians are frightened, not knowing how they’re going to pay their bills and what’s going to happen next. Which is why the Canadian government rolled out major initiatives to help unemployed citizens.

When you’re worried about your next paycheck, dealing with the cross-section of the Canada Emergency Response Benefit (CERB) and taxes is probably your last concern. We understand that. After all, you’ve got bills to pay. But it is important to understand that CERB is not simply free money, and that has an impact on your taxes.

What is the Canada Emergency Response Benefit? (CERB)

The Canada Emergency Response Benefit (CERB) is a form of temporary income support for workers who have stopped work due to the novel coronavirus pandemic. It provides $500 CAD per week ($2,000 per month) for up to 16 weeks for qualifying workers.

The benefit is available to workers who:

  • Are at least 15 years old and reside in Canada
  • Have stopped working due to COVID-19 OR are eligible for Employment Insurance regular benefits OR have exhausted their Employment Insurance benefits between December 29, 2019 and October 3, 2020
  • Who had an income (employment or self-employment) of at least $5,000 CAD in 2019, or in the 12 months preceding their application
  • Who have not voluntarily left their jobs

You cannot have earned more than $1,000 in employment or self-employment income for 14 or more consecutive days within the four-week benefit period of your claim. Keep in mind, however, that workers do not necessarily need to be laid off in order to qualify for CERB–they just need to meet the above eligibility requirements.

EI vs. CERB

At this point, it is important to distinguish between Employment Insurance (EI) and CERB, as it is easy to get them confused.

The EI program provides benefits to individuals who lost their job through no fault of their own, are looking for work, and cannot find a job. This program existed before COVID-19 and remains a completely distinct program from CERB, though they do fill similar functions in this case.

If you are already receiving EI benefits, you will continue to receive benefits until the end of your benefit period. You should not reapply for CERB if you are already receiving EI benefits–you cannot receive both benefits at the same time.

Which Do You Qualify For?

Even if you qualify for both EI and CERB, there is only one scenario where you can choose to opt for CERB benefits: if you started a new EI claim within the last 52 weeks and there are still weeks payable on that claim. In that case, you can either elect to reactivate your existing claim at the existing benefit rate OR request that Service Canada cancel your existing claim and open a new CERB claim (assuming that you meet CERB eligibility requirements).

Keep in mind that if you choose to end your EI claim, any remaining weeks payable on that claim are lost. Your decision is irreversible and is not subject to reconsideration. You cannot get EI and CERB benefits in the same period.

If you are eligible for CERB and EI, you will get EI benefits. You cannot choose to receive CERB benefits except in the situation outlined above. CERB is designed to fill some of the gaps left behind by EI, but it does not generally replace EI.

How Long Will It Last?

CERB currently lasts for a period of about 16 weeks, or four months.

One of the looming questions for CERB recipients is whether CERB’s four-month period will be extended. Prime Minister Justin Trudeau has indicated that the Canadian Emergency Wage Subsidy (CEWS), which helps employers cover the cost of employee wages. There has not been any word on an extension of CERB.

This is in part because CERB has become a political issue. Some workers receiving CERB now earn more than they would have while working, which eliminates the incentive to return to work even though several provinces are re-opening. There’s also a significant potential for abuse. As such, it’s more likely that CEWS will be extended and CERB will not.

Do You Have to Pay Taxes on CERB?

While that may be discouraging for many workers, it does help them avoid their own headaches attached to CERB. Specifically, the question of taxes.

There is a caveat to CERB which has not been widely announced–your CERB payments are considered taxable income. You will be expected to report it on your income taxes for 2020 and your tax bracket will go up due to your CERB benefits.

As such, you should not plan on spending all of your CERB payments if you can help it. You should instead plan on holding onto at least part of your CERB to make up for the shift in your tax bracket.

If you can calculate your yearly income, simply add the total amount of your CERB payments on top of that value. This will be the total used to calculate your tax bracket for 2020. From there, you can look at your tax rate for the correct bracket and set aside the right percentage for your bracket.

Navigating COVID-19 Finances

We know that these are frightening and uncertain times. But we urge you not to let the fear of right now have a negative impact on the future, forcing you to take on extra debt you don’t need. If you need help navigating your finances and taxes, especially in light of the pandemic, we are here to help. Get in touch today to let us know how we can assist you. Call us at 519-310-JOHN.

John Adamson, CPA, CMA

John is a Licensed Insolvency Trustee (1994), a Chartered Insolvency and Restructuring Professional (CIRP – 1994), and a Chartered Professional Accountant with a Certified Management Accounting designation (CPA, CMA – 1992). His experience includes more than 25 years of helping individuals, small businesses, their owners and even lenders, find solutions to their debt problems.

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