CERB and Its Replacements – Cautions!!
The Canada Emergency Recovery Benefit (CERB) is being phased out as of September 26, 2020. To take advantage of these benefits, you have apply by December 3, 2020.
The maximum CERB you can receive is $14,000. CERB is taxable but NO TAX DEDUCTIONS ARE MADE by the government. So you may have a bill come tax time in 2021. Make sure to set aside enough to pay those taxes so you don’t have a nasty surprise next year. You can contact me to make an estimate of what is payable.
CERB will be replaced by three reduced recovery benefits and a new simplified EI.
For those not collecting EI the replacements for CERB will be (1) the Canada Recovery Benefit, or CRB, (2) the Canada Recovery Sickness Benefit, or CRSB, and (3) the Canada Recovery Caregiver Benefit, or CRCB. Is that enough acronyms for you?
The CRB will be for both the self employed and those who were employed but aren’t eligible for EI. It will provide $400 per week (down from the $500 per week for CERB) for up to 26 weeks to workers who still require income support due to Covid or who have not been able to return to work, also due to Covid. Requirements are similar to the CERB, but you will have to be “available for work”.
What to watch for is that there is a “clawback” provision in the rules. That is, if you make too much taxable money, you will have to pay some of the CRB back! How much? The lesser of (1) HALF of your net income over $38,000, and (2) the TOTAL of all your CRB benefits.
That could mean that you will have your regular tax rate, say 25%, plus an additional 50% for a total tax rate of 75% on the dollars that you get from CRB. Wow!
This is where you might think about an RRSP contribution to reduce your income for tax. Every dollar you put into your RRSP will reduce your net income by a dollar. So if you are over the $38,000, contributing to your retirement fund to bring net income down to the $38,000 may save you a ton of money. If you are a family with children, it may also increase the Canada Child Benefit you get. And it may increase your GST credit.
This requires keeping good track of how much you are making. Even making some totals on the back of an envelope can be helpful! Or you can get fancier and keep track of your income and expenses with something like Mint.
It may even pay to talk to your accountant and make some projections. Tax planning is not just for the ‘big boys’ any more!