by Mark Kalinowski
2020 was an unusual year. Not only was there a great deal of anxiety around a global pandemic, but people were out of work or had hours greatly reduced. As we all know, the Federal Government released several assistance programs to help those affected. The most common of them, the Canada Emergency Response Benefit (CERB for short), helped many meet their basic needs. CERB may also cause many to struggle in 2021.
If you received CERB, then you must ask yourself 2 questions. The first: do I owe CERB taxes? Unlike most other forms of income, CERB payments didn’t deduct tax at source. This means that those receiving it should’ve set aside the taxes owed to the government for payment after filing their 2020 taxes in 2021. Some will have earned very little money and may end up owing nothing. However, many Canadians will have to pay some income tax on the CERB money they received.
The second question to ask yourself is if you followed all the rules for CERB qualification. People applied for CERB as their income dropped and they needed to cover expenses; however, some rules were murky and not well laid out. While most who received the benefit in error did so unknowingly, government announcements say that it will need to be paid back if you received it in error. Some could owe as much as $14,000 on benefit repayments.
Whether you actually qualified for CERB or not, you’ll have to pay taxes on it by April 30 to avoid penalties and interest (unless you qualify for recently announced targeted interest relief). If you’re worried you can’t afford this, then here are 4 things to do:
1. File Your Taxes
Even if you can’t afford to pay your taxes, you should still file your income tax return because interest on overdue taxes will be charged whether you file or not (and if you don’t, you’ll also get hit with a late-filing penalty). Owing CRA money is different than owing any other creditor. Money owed to the Crown remains outstanding until the debt is paid or legally settled. CRA can keep money the government would normally give you as part of this payment. For example, they can take your GST cheques or income tax refund to offset the amount you owe.
There are also many other benefits to filing your personal tax return besides avoiding fees. It will open the door to receiving government support that you might be eligible for, which is money that you might need now especially when you’re facing financial difficulties. Knowing how much tax you owe is also better than not knowing at all because you can then make a plan to deal with it.
2. Make Whatever Payments You Can
So let’s get to that plan. If you do owe on your taxes, start making payments now. That doesn’t mean you should pay it all at once. Especially in a situation where you have to survive on an emergency budget, your priority is always to cover your essential living costs. Figure out what’s an affordable regular payment for you and commit to making that payment. This will start reducing the amount owed and shows CRA that you’re trying to meet your financial obligations. Also make sure to set a little money aside. It’s better to save more and make an extra payment later than save nothing and miss a payment when faced with a car repair bill or other unexpected expense.
3. If Asked to Contact the CRA – DO IT!
We cannot emphasize enough that dealing with the CRA is not like dealing with normal creditors. If you ignore the CRA, they can freeze and even seize money from bank accounts, garnish wages, place liens on real estate, or sell your assets to get their money. And unlike other creditors, they can do all this without needing to sue. Talk to them and explain your situation. If they know what’s going on (e.g. that you’re still looking for a job), then they can work with you to come up with a mutually beneficial plan to address the debt.
It’s also important to be polite when talking to a CRA agent. Remember that the person on the other end of the line is paid to do a job but wants to help. Treat them with respect and they will likely do the same.
4. Don’t Go It Alone
No one is alone in working through this difficult time. While some have been affected by physical health concerns, others will have endured mental health challenges, and many are struggling with money issues. Reach out to professionals like your accountant or bookkeeper, a doctor or therapist, or your financial institution or finance expert. Ask a trusted family member or friend to be with you during appointments because it can help to have someone hearing the information with you. Like any obstacle, it can seem overwhelming, but creating a plan will help ensure you’re on the track to success.
If You’re Dealing With CERB Tax Debt Get Help From a Non-Profit Credit Counsellor
If you’re not sure what to do about your CERB tax debt or need more help, book a free and confidential appointment with a non-profit credit counselling organization in your area. Accredited non-profit counsellors are experienced with budgeting and debt management and can help you figure out what payments you should make towards CERB debt while still having money to live. There might even be alternative ways to pay or deal with the debt. The sooner you reach out, the more options you may have, and it will ease your stress when you have a clear plan to deal with the unknown.