Self-employed with net income less than $5K who repaid CERB can get it back

REMISSION ORDER FOR 30,000 PEOPLE TO TOTAL... $240M

Earlier this month, with the court’s permission, Janet Ann Ryan, a Mississauga, Ont.based retired Montessori teacher, withdrew her proposed class-action lawsuit against the government that arose from the Canada Emergency Response Benefit (CERB) eligibility test of having $5,000 of “gross” vs. “net” income.

Ryan, who applied for the CERB based on earning $5,000 in gross income in 2019 from tutoring, was surprised to receive one of the CRA’S recent “education letters,” which stated she may not be eligible for the benefit. She received $14,000 in CERB payments and sued the government, asking it to allow her, and all other claimants in similar situations, to keep any CERB they had received based on their understanding of the rules.

You’ll recall that when COVID-19 first struck in early 2020, many Canadians found themselves out of work. To mitigate the pandemic’s economic impact on Canadian workers, the government hurriedly introduced the CERB, an emergency income support program for individuals unable to work due to COVID-19.

The CERB provided a flat-rate taxable benefit of $500 per week, up to a maximum of 28 weeks between March 15, 2020, and Oct. 3, 2020, to workers who had stopped working and were without (self-)employment income for reasons related to COVID-19. To facilitate the expeditious processing of payments, the CERB was designed as an “attestation-based” program that merely required applicants to confirm they met the program’s eligibility criteria in order to access the benefit (with verification to presumably take place at a later date.)

One requirement was that an individual must have a total income of at least $5,000 from employment or self-employment in 2019 or in the 12 months prior to making an application. For self-employed workers, the government’s policy intent was that the $5,000 threshold would apply to net self-employment income — in other words, to gross self-employment income minus expenses incurred to earn that income.

But the information provided on the government’s websites, including that relayed by the CRA, was unclear and incorrect when the CERB was initially launched. Some individuals applied for and received the CERB after interpreting the income requirement as “gross” self-employment income rather than “net” self-employment income.

In late November 2020, the CRA began issuing letters to approximately 441,000 CERB recipients because it was unable to confirm that their (self-)employment income was at least $5,000. The purpose of the letters was to educate recipients about the eligibility requirements and to encourage those who knew that they did not meet them to repay any amounts received.

An uproar ensued, with many individuals claiming that they had submitted their applications in good faith on the basis that income meant “gross” and not “net.” In the weeks ahead, much pressure was put on the government to reverse its position, thereby not requiring CERB recipients who otherwise qualified for the benefit to repay amounts owing.

On Feb. 1, 2021, Ryan launched her proposed class-action suit by filing a statement of claim against the government asking the Federal Court to authorize anyone who received the CERB from March 2020 through November 2020 based on $5,000 of gross income to be allowed to keep the money.

A mere eight days later, the government backtracked and issued a news release stating that any self-employed individuals who applied for the CERB and would have qualified based on their gross income would not be required to repay the benefit, provided they met all other eligibility requirements. Self-employed individuals whose net self-employment income was less than $5,000, and who had already voluntarily repaid the CERB, would receive repayments from the government.

On May 12, 2021, the government formalized the February announcement by granting a remission order that effectively allowed all affected CERB recipients to keep the money if they relied on the gross vs. net income test (and met all other conditions). The CRA estimated that approximately 30,000 individuals would benefit from the remission order and the total cost would be $240 million.

This cost includes approximately $52 million that is being refunded to individuals who already repaid their CERB amounts. Those repayments began on June 15, 2021. If you’re eligible for a reimbursement, you can complete the CRA’S Form T180, CERB Reimbursement Application for Self-employed Individuals, and submit it to the CRA electronically or by mail. You can expect to be reimbursed within approximately 90 days of submitting your application.

With the remission order now issued, the final chapter in this saga was for Ryan to abandon her proposed class-action lawsuit. Under federal court rules, however, a proceeding commenced by a member of a proposed class of persons on behalf of the members of that class can only be discontinued with the court’s approval. This rule is in place to protect the interests of the proposed class.

Ryan’s lawyer, Jan Weir, prepared a written submission to the court demonstrating that in light of the government’s remission order, “there will be no prejudice to the proposed class if this action is discontinued.” The judge agreed, saying, “Given the Remission Order, individuals like Ms. Ryan who applied for and received CERB benefits on the basis that the definition … refers to “gross” as opposed to “net” income will not be required to repay the CERB based on the net vs gross distinction … Given the Remission Order, the discontinuance will not prejudice the proposed class members.”

According to Weir, only 23 people signed up to join the class action since the lawsuit was filed on Feb. 1 and the government reversed course a week later. Weir, who took the case on a pro bono basis and is personal friends with Ryan, was pleased it ended well.

“I really think that what happened was that some bureaucrat made this decision and they didn’t think it through,” Weir said. “But as soon as the politicians saw it, they knew it was not fair and that the Canadian public will not stand for it. So I knew they were going to retract.”