Repaying individual pandemic benefits - Akler Browning LLP

The worst of the COVID-19 pandemic which began almost three years ago is now (hopefully) behind us. That doesn’t mean, however, that Canadians aren’t still dealing with the unwelcome consequences of the pandemic, in a number of ways.

One of those long-term consequences relates to pandemic benefits which were paid by the federal government and received by individuals across Canada for income support . Those individual pandemic benefit programs ended several months ago, in May of 2022, and the federal government continues to seek repayment of such benefits by individuals who were either not entitled to receive them, or who received benefits in amounts greater than they were eligible for.

It’s not at all surprising that overpayments of individual pandemic benefits took place, for a number of reasons. While there were undoubtedly individuals who deliberately made fraudulent claims for benefits to which they knew they were not entitled, it’s likely that most instances of benefit overpayments arose for other reasons. The first such reason is the sheer number of Canadians who received such benefits. According to Statistics Canada, more than two thirds of adult Canadians benefited from at least one pandemic relief program in 2020 alone. As well, in the first six months of the pandemic (March to September 2020) a single program – the Canada Emergency Response Benefit (CERB) – provided income to over one quarter of Canadian adults. Second, as the pandemic continued, the CERB was replaced by, in turn, the Canada Recovery Benefit, the Canada Recovery Caregiving Benefit, the Canada Recovery Sickness Benefit, and the Canada Worker Lockdown benefit. Given that each of these programs had its own eligibility criteria and benefit periods, confusion and error over eligibility for benefits at any particular time wasn’t just likely, it was almost inevitable. Third, the largest individual pandemic benefit program – the CERB – was administered simultaneously by two different federal government entities – the Canada Revenue Agency (CRA) and Employment and Social Development Canada. Consequently, there were possibly instances in which an individual claimed and received amounts from both entities, not understanding that the same benefit was incorrectly being paid twice. As well, eligibility for pandemic benefits depended, in some instances, on whether an individual was already receiving Employment Insurance benefits, leading to more confusion. And, finally, especially in the early days of the pandemic, individuals who applied for pandemic benefits self-certified their eligibility as part of the online application process. In the interests of getting such benefits into the hands of suddenly unemployed Canadians as quickly as possible, there was no further verification process carried out to determine whether recipients were, in fact, entitled to the benefits claimed and paid.

Regardless of the reasons why an overpayment of benefits occurred, such overpayments must now be repaid. However, in light of the factors outlined above, the federal government has made two decisions with respect to such required repayments. The first such decision is only individuals who received an overpayment of benefits through intentional fraud will face “additional” unspecified consequences – likely in the form of interest and penalties, or even legal consequences. The second decision is that while individuals who received benefit overpayments through innocent error or misunderstanding will be required to repay any overpayment of benefits, there will be no interest charges levied on any of the amounts which they must repay.

The list of benefit programs for which repayment of overpayments will be required is as follows.

• Canada Emergency Response Benefit;
• Canada Emergency Student Benefit;
• Canada Recovery Benefit;
• Canada Recovery Caregiving Benefit;
• Canada Recovery Sickness Benefit;
• Canada Worker Lockdown Benefit.

There are, as well, tax consequences to both receipt and repayment of benefits. Benefits paid under each of these programs constituted taxable income to the recipient and would have been included on a T4A slip issued by the federal government for the tax year in which the benefits were received. Those amounts would have been reported as income on the tax return for that year, and income tax paid on those amounts by the benefit recipient.

Where benefit amounts received in previous years (and on which income tax was paid) are repaid to the federal government, the person who made those repayments is entitled to claim a deduction for the repayment amount on his or her tax return.

Where a repayment is made between January 1, 2021 and December 31, 2022, the taxpayer can choose which tax year to claim that deduction from income or can split the deduction between tax years, whichever gives the best tax result. Where a repayment is made after the end of 2022, however, the deduction can be claimed only in the year that the repayment is made.

The specific rules with respect to deductions claimed for repayments made during 2021 and 2022 are as follows.

For benefit repayments made in 2021, the taxpayer may:

• claim the deduction on the 2021 tax return;
• claim the deduction on the 2020 tax return if he or she received the amount in 2020;
• split the deduction between the 2020 and 2021 tax returns if he or she received the amount in 2020.

For benefit repayments made in 2022, the taxpayer may:

• claim the deduction on the 2022 tax return;
• claim the deduction on the tax return for the year he or she received the benefit (2020 or 2021);
• split the deduction between tax returns.

In January of 2023, the Canada Revenue Agency will be issuing a new form – Form T1B Request to Deduct Federal COVID-19 Benefits Repayment in a Prior Year – which will make it easier for taxpayers to claim a repayment made in 2022 as a deduction on a tax return for a prior tax year.

Not surprisingly, the federal government is making it as easy as possible for Canadians to repay benefit overpayments, by providing them with multiple options when it comes to making such repayments. Repayments can be paid online, on the website of the CRA or the taxpayer’s financial institution. Payments can also be sent by mail, in the form of a cheque or money order (not cash), and any such cheque or money order should be made payable to the Receiver General of Canada. Additionally, repayments can be made at a Canada Post location, using a debit card, with cash, or by using a QR code, which can be downloaded from the CRA website.

Given current economic conditions and the length of time which has passed since some of these benefit payments were made, there will likely be many instances in which benefit recipients will be unable to make immediate repayment in full. In such circumstances, the CRA is willing to receive such repayments over time, under the terms of a payment arrangement with the taxpayer. Once again, no interest charges will be levied on outstanding repayment obligations.

The CRA recently posted on its website detailed information on its current COVID-19 benefit repayment policies and procedures. That information can be found at https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/repay-covid-benefits.html.