More than 1,000 cases related to past COVID-19 benefits are now winding their way through Federal Court as taxpayers wage battle with the Canada Revenue Agency in the hopes of being able to hang on to their benefits as the government continues to try to claw them back from Canadians whom it determines were ineligible.

We apologize, but this video has failed to load.

Try refreshing your browser, or
tap here to see other videos from our team.

CRA wins one, loses one as government pursues pandemic benefits it deems questionable Back to video

Many of the cases heard to date hinge on eligibility and whether the taxpayer can prove they qualified for the benefits in light of sometimes questionable evidence.

Two new COVID-19 benefit cases, decided earlier in July, give us a glimpse into the types of claims that are being reviewed and, consequently, denied. Each case involved the Canada Recovery Benefit (CRB).

The CRB was introduced in late September 2020, at the end of the Canada Emergency Response Benefit (CERB) program, and was designed to offer financial support to eligible Canadians affected by COVID-19. To be eligible for the CRB for a given two-week period, an individual must have earned at least $5,000 of (self-)employment income in 2019, 2020 or in the 12 months prior to the date of their first CRB application.

CRB benefits are most commonly selected for review when it’s unclear that 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 dealt with a taxpayer who had applied for the CRB for eight two-week periods, from December 2020 through May 2021. The taxpayer was contacted in August 2021 by a CRA agent who asked for proof that he had earned $5,000 prior to the first benefit period.

In response, the taxpayer submitted a cheque dated May 26, 2020, in the amount of $5,085 that he claimed to have earned as income as part of a real estate transaction. He didn’t provide a corresponding bank statement to show that these funds were ever deposited.

The first-level CRA review officer concluded that the taxpayer didn’t qualify for the CRB since he didn’t earn $5,000 of income in the prior period. The taxpayer then requested a second-level review.

The second-level CRA officer reviewed the taxpayer’s prior returns, along with a bank statement for June 2020 in which the taxpayer redacted the account number, account holder’s name and transaction description prior to submitting it to the CRA. The cheque for $5,085 payable to the taxpayer was also submitted, but the branch and financial information numbers were redacted by the taxpayer.

The CRA rejected the taxpayer’s claim for the CRB as both his 2019 and 2020 net commission income, as per his tax documents, were negative. “It was unclear that the (taxpayer’s) bank statement was for his account as the statements were heavily redacted to the extent of omitting the (taxpayer’s) name and account number,” the CRA said.

The taxpayer then went to court seeking a judicial review of the CRA’s decision. The judge’s role here is to determine whether the CRA’s decision to deny the taxpayer the CRB was “reasonable.”

The judge reviewed the CRA guidelines — Confirming CERB, CRB, CRSB and CRCB Eligibility — that set out the kind of proof acceptable to demonstrate a taxpayer earned at least $5,000 in income. This proof can include invoices for services rendered, documentation for receipt of payments, a list of expenses to support the net result of earnings and any other documentation.

The judge also considered the cheque that redacted the taxpayer’s account number and the heavily redacted bank statement that omitted the taxpayer’s name, account number and essentially all other information other than enough to show a “mobile deposit” was made on June 2, 2020, in the amount of $5,085.

That evidence, combined with his “net negative commission income” from his 2019 and 2020 tax documents, led the judge to conclude the CRA’s decision to deny the CRB was, indeed, reasonable.

The second case involved a taxpayer who applied for 27 two-week periods of CRB from Sept. 27, 2020, to Oct. 9, 2021. Her prior period income for the purpose of meeting the $5,000 income test consisted of $4,566.90 in employment income, and $550 in cash she received for “domestic services.” This self-employment income brought her total income to just above $5,000.

To support the employment income, she had a T4 slip. But it was the other $550 that the CRA had trouble believing. In support of this income, she provided a letter from her uncle stating that he paid her $550 for domestic services between January 2020 and March 2020, along with a receipt from her that she had received that amount. She also provided her bank statements.

The CRA agent, however, concluded she didn’t meet the $5,000 test since “the ($550) made from working for her uncle was a side job around the house, (which she) cannot use … as income.”

This time, the judge held that the CRA’s decision was “unreasonable” because there was no basis for its proposition that the $500 she received from her uncle for domestic services did “not contribute to (her) income for purposes of the CRB because it was earned in a ‘side job.'”

As a result, the judge ordered the matter be returned to a different CRA agent for reconsideration.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.

_____________________________________________________________

If you liked this story, sign up for more in the FP Investor newsletter.

_____________________________________________________________