Parliamentary Budget Officer Yves Giroux said he’s concerned some Canadians will face an unpleasant surprise at tax time when they are required to pay back hundreds or even thousands of dollars received through the Canada Emergency Response Benefit.
The Trudeau government announced last week that it was extending the maximum length of payments under the CERB from 16 to 24 weeks, for a total payout of $12,000.
The PBO released a report Tuesday that says extending the emergency income support program for another eight weeks will cost $17.9-billion, a figure that is much less than estimates by the federal government.
One of the main differences between the numbers is that the PBO estimates the total cost of the program after income tax is eventually collected, while the government has not released comparable figures.
The CERB is meant to help people who have lost almost all of their income because of COVID-19, but Ottawa is not withholding any income tax on the $2,000 monthly benefit.
In an interview, Mr. Giroux said he’s concerned many CERB recipients are likely unaware they should be setting aside some of their payments for tax time.
“The government was clear, I would say, on the fact that it was taxable. But in a time of crisis, I think this point probably escapes most people. My fear is that there will be a lot of unpleasant surprises come April 30, 2021, when people are faced with the bottom line on their tax returns when it says they owe a few hundred or a few thousand dollars, and that’s a concern,” said Mr. Giroux, who is a former senior official at the Canada Revenue Agency.
“My bet is that the number of accounts receivable at CRA will spike next year,” he said, meaning some CERB recipients will not have enough cash to pay their tax debts to the government.
The percentage of tax owed will depend on the applicable tax bracket for an individual’s total income. For 2020, no federal tax is owed on the first $13,229 in income. Earnings above that amount up to $48,535 are taxed at 15 per cent. The next tax bracket collects 20.5 per cent on income between $48,535 and $97,069.
There are three more federal tax brackets for higher income levels. Provincial income tax also applies to CERB payments.
As a rule of thumb, the PBO calculates CERB recipients will owe an average of $252 for every $2,000 received in benefit payments.
Mr. Giroux added that as the maximum benefit is increased, so, too, will amounts owed at tax time.
The federal government has said the original CERB program with up to 16 weeks of benefits would cost $60-billion, not accounting for income tax collected on the payments. The government did not release a new cost estimate when it announced the extension.
Employment Minister Carla Qualtrough said the monthly cost of the CERB peaked at $17-billion and the extension would have a lower monthly cost as people leave the program to return to work.
Earlier this month, opposition parties rejected government plans to pass Bill C-17 in a single day. The legislation would have imposed new penalties, including up to six months in jail, for fraudulent CERB claims.
A panel of public policy experts organized by the C.D. Howe Institute released a report Tuesday that criticizes key elements of the government’s proposed bill.
“The group generally agreed that proposing imprisonment as a penalty for those who have committed CERB fraud is neither justifiable nor constructive in the current circumstances,” says the report by the institute’s Crisis Working Group on Household Income and Credit Support, which is co-chaired by former deputy minister of finance Michael Horgan and Kathleen Taylor, chair of Royal Bank of Canada.
During an appearance before a Senate committee on Monday, Ms. Qualtrough said the proposed tougher penalties were aimed at serious fraud and not honest mistakes.
“I remain committed to not in any way penalizing someone who honestly commits a mistake or error or somebody who gets an extra payment,” she said. “I can tell you that three months into this my message hasn’t changed – we’re going to work with Canadians where there are errors and mistakes. But, quite frankly, we have learned of situations where people are preying on the vulnerable and taking advantage of seniors, and we want to make sure those people are held to account.”
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