We don’t know with certainty when COVID-19 was first detected in humans, but at least one scientific study suggests a likely timing of the first case was detected in China on Nov. 17, 2019. Four years later, COVID-19 is still with us, but the associated pandemic-related government benefits are long gone.
Yet nearly each week, our federal court system continues to work its way through more than 1,000 COVID-19 benefit cases that are currently under review by the Canada Revenue Agency.
Two recent cases, decided earlier in November, give us a glimpse into the types of claims being reviewed, and rejected, by the CRA. The cases involved the Canada Emergency Response Benefit (CERB) and its replacement, the Canada Recovery Benefit (CRB).
As a reminder, CERB was offered for any four-week period between March 15, 2020, and Oct. 3, 2020. To be eligible for CERB benefits, an applicant had to demonstrate they had income of at least $5,000 from (self-)employment income in 2019 or in the 12 months preceding their first application.
CERB was replaced by 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 CERB in that they required, among other things, that the individual had earned at least $5,000 in (self-)employment income in 2019, 2020 or during the 12 months preceding the date of their application.
CERB and CRB benefits are most commonly selected for review by the CRA when it’s unclear if the taxpayer earned at least $5,000 of income in a prior qualifying period. Each of the two recent cases involved taxpayers asked to prove they earned enough income.
The first case involved a Quebec taxpayer who applied for and received CERB for seven four-week periods (March 15, 2020, to Sept. 26, 2020), and subsequently applied for and received CRB for 27 two-week periods (from Sept. 27, 2020, to Oct. 9, 2021).
On Jan. 20, 2022, the CRA selected the taxpayer’s file for an initial review to determine whether he had met the eligibility criteria for CERB and CRB. The taxpayer explained to the CRA agent that he owned his own company and that he paid himself in dividends as a self-employed worker. The taxpayer produced a T5 investment income slip for the 2020 taxation year showing dividend income of $7,479.60, which was filed on March 31, 2021.
Ordinarily, we think of dividend income as investment income, being the return on an investment in shares, but when it comes to COVID-19 benefits, the CRA has accepted that non-eligible dividends (generally those paid out of corporate income taxed at the small business rate) count towards the minimum $5,000 in income required for eligibility. That’s because business owners have flexibility in how they are remunerated: salary or dividends.
In this case, however, the CRA agent noted the taxpayer hadn’t reported any income or salary since 2013, and no dividends had been paid in the previous nine years. The taxpayer was also unable to provide details of the work he carried out, nor when it was carried out. No invoices or receipts were available.
The taxpayer challenged the CRA’s denial of his benefits, and went to court seeking a judicial review of the CRA officer’s decision. In these cases, the federal court judge’s role is to determine whether the CRA’s decision to deny the taxpayer CERB or CRB was “reasonable.”
In court, the taxpayer argued that he met the CERB and CRB criteria because he declared more than $5,000 of dividends, as evidenced by the T5 slip. He further maintained, citing a 1990 Supreme Court of Canada decision, that dividends “constitute a return on an investment and not a return for work or a service that a shareholder provides to a company.”
But mere receipt of dividend income from his corporation was not sufficient for either the CRA officer or the judge. “Without proof that the (taxpayer) performed work and was paid, it was not unreasonable for the (CRA) officer to conclude that he did not meet the eligibility criteria,” the judge said. “He failed to provide proof of (i) the work he performed, (ii) when the work was performed, and iii) no invoice or receipt to support the work carried out.”
As a result, the judge, despite being sympathetic to the taxpayer’s financial hardship in being asked to repay thousands of dollars in benefits, concluded the CRA’s decision was reasonable and that no reviewable error was made.
The second recent case involved a taxpayer who went to Federal Court seeking a judicial review of the CRA’s decision to deny him CRB for the two-week period of Jan. 31, 2021, to Feb. 13, 2021, and the two-week periods from Feb. 28, 2021, to Oct. 23, 2021. He was being asked to repay $16,000 in benefits.
The taxpayer’s CRB application was denied on the basis he had not earned at least $5,000 of (self-)employment income in 2019, 2020, or in the 12 months before the date of his first application.
The taxpayer maintained the CRA officer’s decision “was unreasonable and should be set aside” because the officer failed to properly consider invoices from the taxpayer’s catering business. The CRA officer had noted the invoices “did not provide customers names or address (sic).” In court, however, the judge noted the invoices do, indeed, appear to provide the customers’ names along with their telephone numbers.
While the taxpayer wanted the judge to immediately declare that he met CRB’s eligibility requirements and to annul the $16,000 owing to the CRA, the judge declined to do so as there was still some uncertainty as to whether the taxpayer met the criteria since he didn’t declare any self-employment income in his 2019 or 2020 income tax returns.
Instead, the judge ordered the matter to be reviewed “afresh” by a different CRA officer who can “properly consider all of the documentation submitted by the (taxpayer) to support his eligibility for the CRB.”