CRA cracks down on COVID benefit payments as a taxpayer found out

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The Auditor General in December 2022 declared a “minimum” of $27.4 billion suspicious COVID-19 benefit payments should be investigated by the Canada Revenue Agency because the government has not effectively managed the various pandemic relief programs.

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The Auditor General’s 92-page report highlighted the government’s success in quickly implementing the six relief programs that distributed a total of $210 billion to individuals and businesses, but it also noted the “lack of of rigor” of the CRA in the identification and recovery of potential overpayments. The Auditor General called on the government to “act now” before it is too late as the law limits verification of eligibility to 36 months after payment.

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The CRA sent 825,000 debt notes (or “Notice of Reconsideration”) to Canadians whom it suspects of having received ineligible or overpayments from various COVID-19 related relief programs. Some benefit recipients, having received notices from the CRA questioning their eligibility, took the matter to court to let a judge determine whether the CRA had been “reasonable” in denying their benefits.

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The most recent case, decided last week, involved a Quebec taxpayer who went to Federal Court in December seeking judicial review of a decision by a CRA benefits validation officer that determined that the taxpayer was not eligible to receive the Canada Recovery Benefit (CCP).

As a reminder, the CRB was set up at the end of September 2020, at the end of the Canadian Emergency Response Benefit (CERB) and was designed to provide financial support to eligible Canadians impacted by COVID-19. In order to qualify for the CRB for a given two-week period, a person must have earned at least $5,000 of income from (self-employment) work in 2019, 2020 or in the 12 months preceding the date of their first CRB request.

This particular case involved a professional artist who applied for the CRB on October 12, 2020. He received CRB payments of $1,000, every two weeks, for the seven two-week periods between September 27, 2020 and January 2. 2021. On January 12, 2021, his case was selected for an eligibility review and assigned to a CRA Benefits Compliance Officer. The CRA agent concluded that the taxpayer had not met the minimum income threshold and therefore was not eligible for the CRB.

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At the end of January 2021, the taxpayer provided the CRA with documents showing that he had earned $5,000 in 2019, consisting of $5,467 in income related to the rental of his Airbnb property, as well as $1,943 in income generated by renting his car.

The problem was that when the taxpayer originally filed his 2019 tax return, he reported a net business loss of $1,240 and failed to report the $7,410 in income he claimed to have earned from his rental business. .

Interestingly, about a week after he challenged his COVID-19 benefits, he informed the CRA that he had “recently discovered an error in his (2019) tax return…and was seeking adjustment.” He requested that his 2019 tax return be adjusted to report net self-employment income of $5,236.

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In August 2021, the first CRA review officer denied his CRB request, finding that the taxpayer had not met the minimum income threshold. The taxpayer subsequently requested a second level review. In October 2021, the second level CRA agent informed him that the income from his Airbnb property, as well as the rental of his car, was not considered self-employment income, but more like rental income, and were not eligible for the $5,000 bonus. minimum income threshold (self-employed), making him ineligible for the CRB.

The taxpayer then obtained a third-level review from the CRA to review the new information he wanted to submit, arguing that his Airbnb rental income should be considered independent business income, as opposed to rental income. .

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As evidence, he cited the CRA report archived interpretation bulletin IT-434RSR, Rental of Immovables by an Individualwhich states that “the operator of a rooming or lodging house, hotel or motel would normally be considered to be carrying on a business when, in addition to the basic services connected with the operation and property maintenance[…]additional services such as the provision of cleaning and maid services, linens, toiletries, dining facilities, etc., are provided for the convenience and comfort of guests.

The taxpayer argued that it provided a variety of services to its Airbnb guests beyond simply renting the unit, including: cleaning services; meet with guests to discuss restaurants, sightseeing and upcoming local events; provide various food items such as coffee, tea, condiments and cooking oil; furnish the unit with clean linens and towels; 24-hour telephone assistance in the event of a problem; and fresh-cut flowers and chocolates (“for longer reservations”). Accordingly, the taxpayer argued that his Airbnb income was self-employment income and not rental income.

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The third-level CRA officer dismissed that argument, noting that Airbnb’s revenue reports separately break down the fees charged to guests for lodging and cleaning, but that only amounted to about $550 of the total income in 2019, which was insufficient to qualify the taxpayer. the CRB.

In court, the taxpayer presented a new argument, stating that he “forgot to include in his 2019 income the sale of a large work of art for $6,000.” A few small prints were also sold during the year. He provided an affidavit from the purported client confirming the purchase of the artwork, but he was unable to produce a bank statement showing that payment had been received. He also failed to report income from those sales on his 2019 return, blaming his partner, who “took care of their taxes and missed the income from those artworks – a mistake.” honest “.

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But since this new information was not presented to any of the three CRA review officers, they could not have taken it into account when considering his CRB eligibility. Therefore, the judge concluded that the CRA’s decision to deny the taxpayer CRB was “reasonable” and dismissed the taxpayer’s case.

Jamie Golombek, CPA, CA, CFP, CLU, TEP, is Managing Director, Tax and Estate Planning at CIBC Private Wealth Management in Toronto. [email protected].

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