CRA, day trader argue over whether pandemic hurt his income enough to claim CERB

National Post

2024-03-28



The Canada Revenue Agency provided an update this week on its ongoing internal review and investigation into the approximately 600 CRA employees who may have inappropriately applied for, and received, the Canada Emergency Response Benefit (CERB) while employed with the agency.

As of March 15, 2024, 232 CRA employees who were found to have inappropriately received the CERB “are no longer with the CRA,” according to an agency statement.

In addition, the courts continue to hear cases on a regular basis about questionable COVID-19 benefit claims that have been flagged by the CRA for closer review. One of the most recent such cases, decided in early March, involved a taxpayer who received $8,000 of CERB payments and $18,000 of Canada Recovery Benefit (CRB) payments. The taxpayer had applied for those benefits after experiencing a reduction in his income as a handyman and, more importantly, as a “day trader.”

As a reminder, the CERB was offered for any four-week period between March 15, 2020, and Oct. 3, 2020, if an applicant could demonstrate they stopped working “for reasons related to COVID-19,” and had income of at least $5,000 from (self-)employment in 2019 or in the 12 months preceding their first application.

The CERB was subsequently replaced by the CRB, which became available for any two-week period between Sept. 27, 2020, and Oct. 23, 2021, for eligible employees and self-employed workers who suffered a loss of income due to the pandemic. CRB’s eligibility criteria were similar to the CERB.

Most of the cases that have ultimately gone to court have focused on whether the benefit applicant had truly earned $5,000 in a prior period, but the other criterion for eligibility, often glossed over, is that the applicant must have stopped working, or had their income reduced, as a direct result of COVID-19 itself, as opposed to some other reason.

In the current case, the taxpayer claimed his day-trading activity, and resulting income, was reduced as a result of the pandemic since he ceased day trading once COVID-19 hit.

On May 15, 2023, the taxpayer received two “Second Review” decisions of the CRA concluding he was neither eligible for the CERB nor the CRB, and that he needed to repay the benefits he had received under these programs.

The taxpayer appealed these decisions to the Federal Court. As in all CERB/CRB eligibility cases, the court is tasked with determining whether the CRA’s decision to deny him the benefits was “reasonable,” and “appropriately justified, transparent and intelligible.”

In court, the taxpayer initially tried to argue he should be successful because the CRA’s online description of the eligibility criteria for the CRB and CERB programs did not stipulate that income from capital gains was not eligible to be counted towards the $5,000 prior-period earnings needed to qualify for the benefits.

After being told of the CRA’s view on this issue, the taxpayer was given the opportunity to resubmit his 2019 income tax return. He did so, and ultimately reported $7,189 in net self-employment income, presumably recharacterizing previously reported capital gains as self-employment business income from day trading, thus putting him over the $5,000 prior period income threshold needed to be eligible for benefits. Since he was permitted to retroactively amend his return, the judge rejected the taxpayer’s position that he was somehow prejudiced by the lack of clarity on the CRA’s website.

The taxpayer then argued that the CRA’s decision to deny him the CERB/CRB was unreasonable because “it is common sense not to sell stocks at a loss.” In support of this position, the taxpayer swore an affidavit in which he stated that, following the outbreak of the COVID-19 pandemic, “the Dow Jones fell 34 per cent below 19,000 points and the market was flat.” He added that “when the stock market hits record lows, you cannot sell your stocks at a loss, therefore it is a waiting game and you stop working and thus your income and working hours are reduced.”

The taxpayer acknowledged the market “has to be a little bit volatile for people to make money off of it.” He also noted “you don’t know where the peak and valley is, it’s like a guessing game.” After characterizing the market as having been “mediocre,” he acknowledged that “(COVID-19) didn’t break my fingers,” that he was “gun-shy” and “hoping the markets drop again to that level to buy in and make some money.”

Based on the above comments, the CRA officer noted “the stock market remained open and accessible during the pandemic and did not flatline. (The taxpayer) was clearly aware of the market’s volatile nature and voluntarily decided to lower or cease the amount of trading (he) participated in due to his personal apprehension. COVID did not impede (his) ability to participate in trading. Based on the available information it is clear COVID was not the reason (the taxpayer’s) day-trading income was reduced.”

The judge agreed, concluding that the CRA officer’s decisions and reasoning “were appropriately justified, transparent and intelligible.”

As for the taxpayer’s other argument that his income from his handyman business should also be used in establishing the $5,000 minimum prior period income, he was unable to provide any documentation whatsoever to support the earnings he claimed to have received from that business.

Consequently, the judge determined it was reasonably open for the CRA officer to conclude the taxpayer had not established that his income from handyman services met the requirements to qualify for CERB/CRB, because that income “was sporadic in nature and records did not exist.”