Winner and loser in CRA pandemic receive advantages crackdown

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We don’t know with walk in the park when COVID-19 was once first detected in people, however no less than one medical find out about suggests a most likely timing of the primary case was once detected in China on Nov. 17, 2019. 4 years later, COVID-19 continues to be with us, however the related pandemic-related govt advantages are lengthy long past.

But just about every week, our federal court docket machine continues to paintings its approach via greater than 1,000 COVID-19 receive advantages circumstances which are these days below evaluation by means of the Canada Income Company.

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Two contemporary circumstances, made up our minds previous in November, give us a glimpse into the varieties of claims being reviewed, and rejected, by means of the CRA. The circumstances concerned the Canada Emergency Reaction Receive advantages (CERB) and its alternative, the Canada Restoration Receive advantages (CRB).

As a reminder, CERB was once introduced for any four-week duration between March 15, 2020, and Oct. 3, 2020. To be eligible for CERB advantages, an applicant needed to display that they had source of revenue of no less than $5,000 from (self-)employment source of revenue in 2019 or within the one year previous their first software.

CERB was once changed by means of CRB, which turned into to be had for any two-week duration between Sept. 27, 2020, and Oct. 23, 2021, for eligible workers and self-employed employees who suffered a lack of source of revenue because of the pandemic. CRB’s eligibility standards had been very similar to CERB in that they required, amongst different issues, that the person had earned no less than $5,000 in (self-)employment source of revenue in 2019, 2020 or all over the one year previous the date in their software.

CERB and CRB advantages are maximum recurrently decided on for evaluation by means of the CRA when it’s unclear if the taxpayer earned no less than $5,000 of source of revenue in a previous qualifying duration. Each and every of the 2 contemporary circumstances concerned taxpayers requested to turn out they earned sufficient source of revenue.

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The primary case concerned a Quebec taxpayer who implemented for and gained CERB for seven four-week sessions (March 15, 2020, to Sept. 26, 2020), and due to this fact implemented for and gained CRB for 27 two-week sessions (from Sept. 27, 2020, to Oct. 9, 2021).

On Jan. 20, 2022, the CRA decided on the taxpayer’s document for an preliminary evaluation to resolve whether or not he had met the eligibility standards for CERB and CRB. The taxpayer defined to the CRA agent that he owned his personal corporate and that he paid himself in dividends as a self-employed employee. The taxpayer produced a T5 funding source of revenue slip for the 2020 taxation yr appearing dividend source of revenue of $7,479.60, which was once filed on March 31, 2021.

Ordinarily, we call to mind dividend source of revenue as funding source of revenue, being the go back on an funding in stocks, however on the subject of COVID-19 advantages, the CRA has accredited that non-eligible dividends (normally the ones paid out of company source of revenue taxed on the small trade fee) depend in opposition to the minimal $5,000 in source of revenue required for eligibility. That’s as a result of trade house owners have flexibility in how they’re remunerated: wage or dividends.

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On this case, on the other hand, the CRA agent famous the taxpayer hadn’t reported any source of revenue or wage since 2013, and no dividends have been paid within the earlier 9 years. The taxpayer was once additionally not able to offer main points of the paintings he performed, nor when it was once performed. No invoices or receipts had been to be had.

The taxpayer challenged the CRA’s denial of his advantages, and went to court docket in the hunt for a judicial evaluation of the CRA officer’s resolution. In those circumstances, the federal court docket pass judgement on’s position is to resolve whether or not the CRA’s resolution to disclaim the taxpayer CERB or CRB was once “affordable.”

In court docket, the taxpayer argued that he met the CERB and CRB standards as a result of he declared greater than $5,000 of dividends, as evidenced by means of the T5 slip. He additional maintained, mentioning a 1990 Splendid Court docket of Canada resolution, that dividends “represent a go back on an funding and no longer a go back for paintings or a carrier {that a} shareholder supplies to an organization.”

However mere receipt of dividend source of revenue from his company was once no longer enough for both the CRA officer or the pass judgement on. “With out evidence that the (taxpayer) carried out paintings and was once paid, it was once no longer unreasonable for the (CRA) officer to conclude that he didn’t meet the eligibility standards,” the pass judgement on stated. “He failed to offer evidence of (i) the paintings he carried out, (ii) when the paintings was once carried out, and iii) no bill or receipt to enhance the paintings performed.”

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In consequence, the pass judgement on, regardless of being sympathetic to the taxpayer’s monetary hardship in being requested to pay off 1000’s of bucks in advantages, concluded the CRA’s resolution was once affordable and that no reviewable error was once made.

The second one contemporary case concerned a taxpayer who went to Federal Court docket in the hunt for a judicial evaluation of the CRA’s resolution to disclaim him CRB for the two-week duration of Jan. 31, 2021, to Feb. 13, 2021, and the two-week sessions from Feb. 28, 2021, to Oct. 23, 2021. He was once being requested to pay off $16,000 in advantages.

The taxpayer’s CRB software was once denied at the foundation he had no longer earned no less than $5,000 of (self-)employment source of revenue in 2019, 2020, or within the one year ahead of the date of his first software.

The taxpayer maintained the CRA officer’s resolution “was once unreasonable and will have to be put aside” for the reason that officer failed to correctly imagine invoices from the taxpayer’s  catering trade. The CRA officer had famous the invoices “didn’t supply consumers names or cope with (sic).” In court docket, on the other hand, the pass judgement on famous the invoices do, certainly, seem to give you the consumers’ names at the side of their phone numbers.

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Whilst the taxpayer sought after the pass judgement on to straight away claim that he met CRB’s eligibility necessities and to annul the $16,000 owing to the CRA, the pass judgement on declined to take action as there was once nonetheless some uncertainty as as to if the taxpayer met the factors since he didn’t claim any self-employment source of revenue in his 2019 or 2020 source of revenue tax returns.

As an alternative, the pass judgement on ordered the topic to be reviewed “afresh” by means of a unique CRA officer who can “correctly imagine all the documentation submitted by means of the (taxpayer) to enhance his eligibility for the CRB.”

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Property Making plans with CIBC Personal Wealth in Toronto. Jamie.Golombek@cibc.com.

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