Three cases where COVID-19 benefits were denied to taxpayers

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It’s been nearly five years since COVID-19 benefits were introduced, yet nearly every week the federal court continues to hear cases brought by individuals who received benefits that, upon subsequent scrutiny by the Canada Revenue Agency, they were not qualified to receive. Here’s a trio of recent such cases decided over the past month that gives us a window into the types of claims taxpayers made, and why they are being denied.

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The day trader

The first case involved a day trader, who was in federal court recently trying to hang on to her Canada Recovery Benefit (CRB). As a reminder, the CRB replaced the Canada Emergency Response Benefit (CERB), both of which were available to eligible employees and self-employed workers who suffered a loss of income due to the pandemic. The CRB’s eligibility criteria were similar to the CERB in that they required, among other things, that the individual had earned at least $5,000 in (self-)employment income in 2019, 2020 or during the 12 months preceding the date of their application, and that they ceased working due to COVID-19.

The self-employed day trader stopped working in April 2019 to care for her family members. She applied for a benefit under the CRB program, but her eligibility was questioned by the CRA.

The taxpayer explained that she ceased day trading due to the sickness of her mother, her sister, and her dog. The taxpayer had to travel to another city to look after her mother. In April 2019 she had to euthanize her dog. Both her mother and sister eventually died. The taxpayer further noted that she contracted COVID-19 in March 2020, January 2021, and October 2022.

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The judge was sympathetic, acknowledging the taxpayer’s tragic personal circumstances, but still found the CRA’s decision to deny her the benefits was “reasonable.” The CRA noted that the taxpayer did suffer a reduction in income when she stopped day trading, but this was in April 2019, which was 11 months prior to the start of the pandemic. Thus it was reasonable for the CRA to conclude that the reason the taxpayer stopped working was unrelated to COVID-19.

The fitness club owner

The second case involved a taxpayer who opened a fitness facility in August 2019. In order to get his business off the ground, he did not pay himself a salary until 2020. But, because of government-imposed restrictions during the pandemic, the taxpayer was forced to close his facility for certain periods. He says that the business was closed for 13 months during a 24-month period. Despite being closed, however, the business continued to incur fixed costs, including rent and utilities. While the taxpayer tried to find other employment during this period, he was unable to do so because other service-related industries were also experiencing slowdowns and closures.

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The taxpayer applied for the CRB for 27 two-week benefit periods but the CRA subsequently advised him that he was only eligible for 15 of these periods because he had not experienced a 50 per cent reduction in his average weekly income during the relevant periods, based on the income he had reported for the 2019 and 2020 calendar years.

The taxpayer went to court seeking a judicial review of the CRA’s decision to deny him benefits. He argued that he was forced to shut down his business because of government-imposed lockdowns, and that it was unreasonable for the CRA not to take this into account in calculating his drop in income over the prior 12 months. As he explained, “If the months he was forced to close were not included, he would be eligible for the CRB benefits for the entire period he claimed them.”

As in all such benefits cases, the federal court judge’s role is to determine whether the CRA officer’s decision was reasonable. While the taxpayer argued that the criteria should be different to reflect the reality of small business startups, and to take into account periods when income was lost due to pandemic lockdowns, the judge explained that both of these issues could have been taken into account by Parliament and reflected in the CRB Act, either by adopting different rules or giving CRA officers more discretion. Instead, Parliament adopted the rules as set out in the legislation and gave CRA officials virtually no discretion in applying them. In other words, the CRA officer had no choice but to apply the criteria set out in the law, which the taxpayer simply did not meet.

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The judge therefore determined that the CRA’s decision to deny the other 12 periods of benefits was reasonable.

The injured worker

The third case involved a taxpayer who lost his job in 2017 due to a workplace accident, and was supposed to start working again beginning in November 2019. He began seeking employment that month, but was not employed when the pandemic began in March 2020. As a result, the only income the taxpayer received in 2019 and 2020 came from T5007 slips issued by the Government of Quebec for workers’ compensation benefits, namely $18,366 in 2019, and $9,577 in 2020.

The taxpayer applied for the CERB, which was later challenged by the CRA because he didn’t meet the proper criteria. While the taxpayer acknowledged that he did not “stop working” since he was not working when the pandemic began, he argued that the CRA officer should have nonetheless considered that he was looking for work, and therefore should be eligible for benefits.

The judge disagreed, noting that there was no support for this position, and thus the CRA officer’s decision to deny the taxpayer COVID benefits was reasonable since he didn’t meet the legislative requirements, namely that he stopped working for reasons related to COVID, and that he had at least $5,000 of (self-)employment income.

Jamie Golombek, FCPA, FCA, CFP, CLU, TEP, is the managing director, Tax & Estate Planning with CIBC Private Wealth in Toronto. Jamie.Golombek@cibc.com.

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