Amnesty or no amnesty: a CERB clawback hangover is in the cards for 2021

Who would benefit from a CERB amnesty?

Many progressive voices have been calling for a CERB amnesty for low income Canadians. This would mean that specified recipients of the CERB would not have to pay back the CERB – either all or in part – even if they are found ineligible for the benefit. There are a variety of reasons for supporting an amnesty including:

  • Many social assistance recipients across Canada – likely ineligible for the benefit – were instructed by officials to apply for the CERB just in case they might be eligible;
  • CERB rules kept changing after the first announcement of eligibility rules;
  • Many low income people faced the difficult choice between exposing themselves to COVID19 or staying safe in isolation with  CERB financial help;
  • Many thousands applied not really knowing whether they would be eligible until tax time next year;
  • Some low income people with disabilities believed that applying for CERB was a life or death decision; and
  • Many unsuspecting applicants had their CERB clawed back by other programs.

We should be clear that we are not talking here about fraudsters collecting the CERB under different names and pseudonyms. We are only talking about people who applied because they were either pressured into it or legitimately believed that they could be ultimately found eligible for the benefit.

In all, they applied for the CERB and got it. And for many, they were inclined to get the money now and let the chips fall where they may. Many were in panic mode. We didn’t know what was up. Apply now and ask questions later.

With the introduction of Bill C-17, applicants learned that if they became ineligible for the CERB, they could be facing time in the slammer. Luckily, when C-17 died on the order paper, that fate will be reserved for only the most egregious of fraudsters.

Without an amnesty, CRA will recoup from ‘CERB ineligibles’

We should make no mistake about the Canada Revenue Agency’s capacity to get money back from ‘CERB ineligibles’. Low income people especially are eligible for the highest refundable tax credits. For the CRA, it will be child’s play from a technical and administrative standpoint to get their money back from ‘CERB ineligibles’ by draining future credits.

They can simply scoop future refundable credits for as many years as it takes to square the tax accounts of people who are found ineligible. Future GST credits, Child benefits and carbon credits are all available to the CRA, Canada’s largest public sector collection agency.

Of course, CRA will stand down if there is ‘undue hardship’ and I predict that this clause will gain a lot of attention next year:

“The purpose of the hardship provisions is to ensure that a debtor is not put into undue financial hardship as a result of the recovery of a government program debt. Undue hardship exists when the debtor’s personal and financial situation is such that making payments on an amount owed to ESDC would deprive the debtor of the necessities of life including accommodation, food, clothing, medical attention, and public utilities such as water, electricity, and heating.”  -IC13-2R1

The idea of an amnesty is therefore not an accounting dilemma. It is a political decision surrounding mass hardship.

Recouping money from ‘CERB ineligibles’ might be easy but it would leave recipients without their tax credits possibly at a future stage of the pandemic; in other words, at the worst possible time.

What would or could an amnesty look like?

The federal government could start by announcing an amnesty now for low income people in certain situations; for example, social assistance recipients who could prove they were forced to apply for CERB and then got cut off their social assistance.  

The federal government could also place a moratorium on ‘found ineligible for CERB’ letters to be sent to people by CRA and see who the ‘found ineligibles’ are.

They could extend an amnesty to anyone with a social assistance T5. CRA will have that information early in 2021.

They could also declare an amnesty for anyone living at incomes below the Market Basket Measure (MBM). That would create tremendous relief for people living in poverty

They could construct an algorithm to give an amnesty to anyone with taxable income below a chosen level.

They could do any mix and match of the above. They could announce their intentions now or later.

But what happens with future CERB clawbacks in a CERB amnesty?

A CERB amnesty is good news for jurisdictions and programs that chose to engage in CERB clawbacks.

Of course, provinces and territories would keep all the money they clawed back. Ten of thirteen provinces and territories claw the CERB back from social assistance payments. They would make money on any amnesty.

The bigger the amnesty, the more they keep. We must remember that the real value of clawbacks will spike if ineligible low income people are allowed to keep their CERB.

Social assistance administrations wouldn’t have to give any money back. Subsidized housing could keep their CERB-generated rent increases and recipients of the federal Guaranteed Income Supplement (GIS) would see the incomes from that program reduced.

CRA can’t rescind provincial and territorial rent increases and SA clawbacks that have already taken place. Provinces and Territories must do that.

Absent an amnesty – a huge wave of CERB Clawbacks in 2021   

Then there is the massive wave of clawbacks that will only begin after 2020 tax returns have been filed and CRA starts lowering all refundable credits based on income. This could be huge for Canada Child Benefit (CCB) recipients who – barring an amnesty – might lose their child benefits to CERB repayments; also for GST credit and Canada Workers Benefit recipients.

Hold onto your hats for that one but a huge round of rent increases and clawbacks could start next year mostly for GIS recipients who number into the many tens of thousands. Add to that the many EI recipients who will still qualify for social assistance and have their social assistance clawed back due to EI income at 100% of gross. In the EI/social assistance world, earnings exemptions that were extended to the CERB (likely) no longer apply.

So will there be a parallel amnesty on clawbacks for legitimate CERB income?

That’s a crucial related question but it is highly unlikely.

And if there is no amnesty, will CRA collect every last dime from ‘CERB ineligibles’ from future refundable credits long into the future?

We shall all have to wait and see.

Js//September 6, 2020