Deduct, Offset and Charge!

A modern history of benefit confiscation from social assistance, RGI housing, post-secondary assistance and low income seniors programs in the time before COVID19

In 1935, the newly minted Minister of Ontario’s Public Welfare department, David Croll, was faced with a new dilemma respecting the delivery of ‘relief’ to the poor. A significant number of municipalities across the province were declaring bankruptcy. Their workforces were being furloughed and being added to unemployment lines.

Up until then, municipal staff had gathered bags of food, coal and coke for furnaces, clothes hampers and personal effects and delivered them to the poor who lined up for these provisions at municipal offices. But with no staff to stuff bags, relief lines were growing shorter even though the need was just as great.

The 35 year old Minister had been thinking about providing cash relief as an alternative to the cumbersome and stigmatic relief lines. But municipal bankruptcies forced the adoption of cash relief at record speed.  Croll dusted off the 1932 report of the Campbell Commission that had ‘costed out’ various necessities.

Croll instructed the remaining municipal workforce – often unpaid – to start handing out money.

Early cash relief did not involve complicated needs testing. There was no asset test. Local administrators knew who you were. Few would endure the rigours of a relief line if they had resources. But over the next three years, the Department of Public Welfare collected reams of data (now in the Provincial Archives) and devised a benefit structure based on family size, composition and shelter type (boarders vs. renters and owners).

Officials also devised a needs test that later became known as the budget-deficit needs test. The monthly budget for a family was set and any income that the family had taken in was deducted from the budget and the remainder was paid as cash relief.

In 1938, a large review of relief was undertaken in Ontario during a resurgence of the Great Depression that was later labeled in its entirety as ‘10 lost years’. Relief rates were cut and exemptions that some municipalities implemented to encourage earnings were slashed. At the same time, the province was moving municipalities out of bankruptcy and was taking greater control of relief administrations at the local level.

Coming out of World War II, there was much talk of having the federal government assume control over all income security programs. After all, Unemployment Insurance had been ushered in at the federal level in 1940 and Baby Bonuses were a Government of Canada initiative of 1944 along with a new Department of Veteran Affairs charged with the task of providing income security to returning soldiers.

But federal-provincial wrangling in the late 1940’s put an end to that idea and the budget deficit method designed for Depression era destitution was implemented as a part of post-war welfare programs.

Fast forward to 1966 when the Canada Assistance Plan (CAP) provided 50-50 cost sharing to provinces and territories. Here,  the budget deficit method was adopted not only as a cornerstone of social assistance design, but as a cost sharing condition for social assistance across Canada. No budget deficit? No cost sharing.

But that was not all that was stipulated under CAP. CAP rules also insisted that all federal income replacement programs be deducted from social assistance at 100% of gross income. That meant EI, CPP, and veteran’ benefits were deducted in full under social assistance programs from coast to coast.

For consistency and in accord with the philosophy of the budget deficit methodology, provinces and territories also deducted their income replacement programs at 100% of gross income. Worker’s compensation and child support became part of it.

Then four important things happened.

In 1978, Monique Begin introduced the first federal child benefit as a refundable credit and asked provinces to exempt it from their social assistance programs. They obliged. And with only one skirmish between 1998 and 2008 called the National Child Benefit Supplement (NCBS) clawback, all refundable credits paid as income security benefits to lower income Canadians have been treated as exempted income for social assistance purposes. The GST credit, Trillium in Ontario, the CCB, and the Canada Workers Benefit are all exempt under social assistance programs across Canada.

The second important thing was the demise of CAP in 1996. Provinces and territories became free to redesign their social assistance programs and rethink the budget deficit method. But we all know the history. In the ensuing 24 years, none did – except to take children out of social assistance – and all provinces and territories continue to deduct (with few exceptions) income replacement benefits from social assistance.

The third important development was the adoption of welfare – like rules for rent geared to income (RGI) housing, post-secondary grants and loans and Canada’s income tested payments for low income seniors – the Guaranteed Income Supplement (GIS). These program areas, over the years, developed program rules that mimicked social assistance designs in important aspects. For example, rent geared to income housing tends to exempt refundable credits from rent calculations while counting income replacement programs like EI and CPP at 100% of gross. Sound familiar?

And post-secondary student assistance (in Ontario) counts income in the exact same way while the federal GIS claws back income replacement programs at 50%.

The fourth development was that, over time, provinces and territories started to exempt other income sources that were not meant to replace income. Criminal compensation awards, various court settlements, inquiry based compensation and other special compensation awards were specifically exempted as income under social assistance, RGI housing and student assistance. In fact, under Ontario Works and ODSP, there are lists of approximately 100 exemptions in addition to refundable credits. These exemptions are paralleled in RGI housing and post-secondary assistance regulations.

All well and good until COVID19 came along and ran up against the grand traditions of   income treatment under social assistance, RGI housing and post-secondary assistance. The big question that everyone wanted answered for the new Canada Emergency Response Benefit (CERB) and the Canada Emergency Student Benefit (CESB) was to know whether they were income replacement benefits or refundable credits.

And you know what happened next.

The federal government said the CERB was an income replacement but should be treated like refundable credits.

Both …………. And?

The legal pedigree of the CERB, for example is a taxable benefit. It attracts a T4A. It is taxable income replacement money. All of the finely honed income confiscation machines built into social assistance RGI housing, post-secondary student assistance and the federal GIS sat ready to do what they have been doing for decades: deduct, offset and charge. It’s what they do and what they are designed to do.  

But the Minister responsible for EI, Carla Qualtrough, said through a spokesperson:

“Our government believes the CERB needs to be considered exempt by provinces and territories in the same way as the Canada Child Benefit to ensure vulnerable Canadians do not fall behind*

In the annals of advertising, it’s good to have two purposes. Remember the tagline for CERTS:

“CERTS is a candy mint………….and a breath mint.”

Now the CERB is a taxable income replacement benefit AND a refundable credit.

The confusion caused by the CERB having competing pedigrees – one legally based – one policy based – resulted in exactly what should have been expected: One province or territory does one thing, the other another, and the rest something different.

So here we are with a methodology born in the Great Depression making its presence felt 85 year later.

I believe that this will all sort itself out. In some ways it has to.

The reason is that when you read through all the exempted refundable credits and the long list of other exempted forms of income, the CERB and the CESB are firmly in the policy court of exempted forms of income. They are like that long list of items whose purpose is other than simple income security. The CERB and CESB are there to get people to self-isolate, to stay inside and to stay safe. They are not in place to simply replace income.

But there is a lesson here:

The federal government should have decided in advance that they wanted provinces and territories (and indeed themselves) to exempt the CERB and CESB as special benefits for purposes other than simple income replacement. Then they should have deemed these benefits to be income sources equivalent to refundable credits in legislation.


Because then provinces and territories would have been forced to pass laws to confiscate them as opposed to exempting them. But since they did not, the default laws in provinces and territories instructed their administrators to deduct, offset and charge. For those who listened to Minister Qualtrough or acted to exempt on their own, each had to change their laws to exempt.

And we applaud the provinces and territories representing 90% of Canada’s population for having the courage to fully or partially exempt the CERB under social assistance. Now we await verdicts for  the CERB and the CESB  under RGI housing, post-secondary assistance and the federal GIS.

Let’s hope that correct decisions get made soon and the policy muddle gets clarified.


* Ottawa to the provinces: Don’t claw back CERB for workers on social assistance“, Laurie Monsebraaten, The Toronto Star, April 13, 2020