As tax season approaches, many Canadians are facing new challenges when it comes to filing their returns. The COVID-19 pandemic led to the introduction of emergency support programs, such as the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB). While these benefits provided much-needed financial relief, they also bring important tax implications and, for some, the possibility of repayment.
If you’re wondering, “Do I owe taxes on CERB?” or “Will I have to repay the benefit?” —you’re not alone. Let’s break it down.
Taxes on CERB and CRB Payments
How Much Tax Will You Owe?
The amount of tax you owe on CERB or CRB depends on a variety of factors, including your total income for the year, your province of residence, and your personal tax credits. Since these benefits are considered taxable income, they are added to any employment or other earnings you had in 2020.
Your final tax calculation is determined when you file your return. Once processed, the Canada Revenue Agency (CRA) will assess your income, apply tax rates, and determine whether you owe additional tax or are entitled to a refund.
If CERB Was Your Only Income
If you received only CERB and no other income in 2020, you may not owe anything in taxes. For example, in Manitoba, you are not required to pay income tax on the first $9,838 of earnings. So, if you received $9,500 in CERB and had no other taxable income, your tax bill could be $0.
If You Had Additional Income
However, if you had other earnings—before, during, or after receiving CERB—you could be in for a tax bill. Here’s an example:
- Let’s say your employment income was $80,000 in 2020.
- Any amount above $72,885 is taxed at 9% in Manitoba.
- If you received $9,500 in CERB, that portion would be taxed at this rate.
- You could owe approximately $3,600 in taxes on the CERB amount alone.
To estimate your tax liability, refer to combined federal and provincial tax rate tables for your income level. Your marginal tax rate—the percentage of tax owed on each additional dollar earned—can help you predict how much you’ll owe.
How CRB Taxes Differ
Unlike CERB, the Canada Recovery Benefit (CRB) has tax deducted at source. The government automatically withholds 10% before issuing payments. For every $1,000 in CRB you receive, you actually get $900, with $100 withheld for taxes.
However, that doesn’t necessarily mean you’re in the clear. Depending on your total income, you could still owe more when you file your return.
- Example: If you earned $36,000 in employment income and received $9,500 in CRB, the estimated tax owing on CRB would be $2,636.
- Since only $950 was withheld (10%), you could still owe an additional $1,686 at tax time.
On the other hand, if CRB was your only source of income, the tax withheld might have been too much. In that case, you could be entitled to a refund when you file your return.
Bottom line? While CRB has some tax taken off, it may not be enough—so it’s important to plan ahead.
Will You Have to Repay CERB or CRB?
In addition to taxes, some Canadians may be required to repay CERB or CRB benefits deemed ineligible by the CRA.
Why Might You Need to Repay?
- Eligibility criteria confusion: The programs were implemented quickly, and some people misunderstood the requirements.
- CRA audits: Approximately 441,000 “education letters” were sent to Canadians asking for CERB or CRB repayments due to ineligibility.
While the government has pledged to work with individuals to create flexible repayment plans, repayment demands could still cause financial hardship for many.
What If You Can’t Afford to Repay?
If you owe taxes on CERB or need to return benefits you were deemed ineligible for, you do have options.
- CRA may allow a repayment plan. They have committed to working with individuals who applied in good faith but were later found to be ineligible. However, they will not reduce or cancel the debt—only adjust the terms of repayment.
- A Licensed Insolvency Trustee (LIT) can help. If you cannot repay your CERB or tax debt even with a payment plan, you may want to consider a Consumer Proposal or Bankruptcy. These are the only legal options in Canada that can reduce or eliminate government debt, including amounts owed to CRA.
Take Control of Your Financial Situation
Navigating CERB taxes and repayments can be complex, but you don’t have to do it alone. At LCTaylor, our Licensed Insolvency Trustees provide:
- Free Consultations: We’ll review your financial situation and explain your options.
- Customized Solutions: Whether it’s budgeting assistance, a Consumer Proposal, or Bankruptcy, we’ll help you choose the right path.
- Compassionate Guidance: We understand the challenges caused by COVID-19 and will work with you without judgment.
If you’re unsure how much tax you’ll owe or worried about repaying CERB or CRB, let us help.
Contact us today for a free, no-obligation consultation.
Don’t let uncertainty overwhelm you—take the first step toward financial clarity today.