The CRA reversed $246 million in COVID benefit debts after taxpayers challenged their decisions
The Canadian government has had to annul debts totalling over $246 million for numerous citizens initially deemed ineligible for pandemic benefits. Since 2022, the Canada Revenue Agency (CRA) has been reclaiming funds from individuals who allegedly received benefits, such as the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB), erroneously.
To retrieve funds sent to ineligible recipients, the government has been withholding tax refunds and other entitlements. According to the CRA, by the end of 2023, approximately $1.8 billion had been recollected from erroneous pandemic benefit payments. Nonetheless, many Canadians have successfully contested the government's assessment of their eligibility, with hundreds resorting to legal action.
As of April 2024, the CRA has nullified debts for approximately 27,000 individuals initially deemed ineligible but later verified as eligible. Notably, these figures pertain only to pandemic benefits administered by the CRA. A segment of the CERB program was managed by Employment and Social Development Canada (ESDC), which stated to CBC News that it does not track the reversal of benefit debts.
Taxpayers are frustrated by the review process
In general, once the CRA notifies taxpayers of their ineligibility to receive the Covid benefits, they can still request a 2nd independent review by another CRA agent who didn't previously work on the case. However, if CRA maintains the same decision in the 2nd review, the taxpayers' only alternative is to file an application for judicial review with the Federal Court within 30 days. Our experienced tax lawyers, on average, see about two to three people per week who have been asked to repay their covid emergency benefits. Based on the experience at our tax law firm, although some people who applied for the covid benefits were not qualified, in many other cases, the CRA tax audit results were unreasonable or wrong and there's a lot of inconsistency in their review process.
It is also difficult for a taxpayer to argue a case with the CRA once an initial decision has been made because there is a reverse onus in tax law, which almost assumes the taxpayers are guilty until proven innocent. Furthermore, the CRA has an unfair advantage over the taxpayers in this type of situation because it can essentially assume facts, which is often what they do, and it's the taxpayer who bears the burden of disproving those facts. That's why it's extremely rare for the CRA to change its position after a taxpayer has requested a second review.
Still, a representative for the Minister of National Revenue, Marie-Claude Bibeau, expressed confidence in the ongoing validation process on April 18, 2024, by making the following statements:
"Following the CRA's issuance of redetermination notices to certain individuals initially deemed ineligible, numerous Canadians successfully substantiated their eligibility with appropriate documentation...We are highly content with the CRA's validation process in this regard and remain committed to ensuring that all eligible Canadians receive their entitled benefits." Nevertheless, many taxpayers have expressed their frustrations with the way the CRA handled the review process.
According to CBC, on one occasion, Jason Harth, a resident of Cambridge, Ontario, shared that his daughter applied for the Canada Emergency Response Benefit (CERB) when she was laid off during the pandemic. About nine months later, she secured new employment. However, approximately a year later, Harth stated that his daughter began receiving notices indicating her eligibility was under review. He assisted her in providing the necessary documentation to prove her eligibility. Harth recounted that, after collaborating with the CRA, they discovered his daughter had received some additional CERB payments, which they agreed to reimburse. However, when a final notice arrived a few weeks later, he claimed the eligibility assessment contradicted their previous understanding. It stated she was eligible for the extra payments but not for the period she was laid off. Despite multiple attempts to address the issue with the agency, Harth and his daughter were reportedly informed there was no recourse, and she was required to repay $16,000.
On another occasion, Kelly Stewart from Ottawa stated that despite providing the CRA with documentation to support her eligibility, she was still deemed ineligible for the benefits she had received. Stewart also mentioned having to submit her documentation twice because the CRA claimed her initial submission was lost in their mail room. Additionally, she noted discrepancies in the case numbers on the two decision notices she received, which did not match the original case number assigned to her.
Pro tax tips – Taxpayers should have the benefit of the doubt due to legislation ambiguity
One of the most contentious issues regarding CERB and CRB eligibility is the requirement of a minimum income of $5,000. The CERB Act had no specific requirement regarding whether the term "income" refers to gross or net income. According to the principles of statutory interpretation in tax law, taxpayers should have the benefit of the doubt whenever there's legislation ambiguity. Therefore, the term "income" regarding CERB should be gross income from either employment or self-employment income. As for CRB, the legislators realized the ambiguity and clarified that only after expenses net income should be used for self-employment income calculation.
Many clients of our Canadian tax law firm tried to raise the ambiguity issue at the 2nd review but were still forced to apply for judicial review as the CRA rarely changes its decisions in its 2nd review. However, most of them were offered a 3rd review from the CRA during the judicial review process in exchange for discontinuing their judicial review application, which will most likely allow these taxpayers to keep their COVID benefits. Therefore, taxpayers should not be discouraged by the CRA's decisions regarding their COVID-19 benefit eligibility criteria. Instead, they should seek professional advice from an experienced Canadian tax lawyer to objectively evaluate their case and decide on their next move.
FAQ:
What is a judicial review?
If you believe the CRA did not properly exercise its discretion in arriving at the decision, you can apply for judicial review of that decision to the Federal Court within 30 days of the date you received the CRA decision.
To apply for judicial review, you must send a completed Form 301, Notice of Application, with the appropriate filing fee to the registrar of the Federal Court. For more information about how to file an application for judicial review or other general enquiries, visit the Federal Court website.
If it is determined that the Minister's discretion was not properly exercised, the Federal Court cannot change the CRA's decision but it can refer the decision back to the CRA to be reconsidered by another delegated official.
Does the minimum income requirement in CERB & CRB mean net income or gross income?
The term income regarding the CERB Act should extend to gross income, but for CRB, income only applies to net income.
This is because there was legislation ambiguity in the term "income" in the CERB Act, therefore the taxpayers should have the benefit of the doubt according to the principles of statutory interpretation. However, the legislation was clear that the term income only applies to net self-employment income regarding CRB.
What can I do if CRA denies my CERB & CRB benefits?
The first step is to request a 2nd review within 30 days from the date of the CRA's decision letter. If the CRA maintains the same decision in its 2nd decision letter, your only alternative is to file an application for judicial review with the Federal Court.