Over the last year, CRA has increased verification activity in respect of eligibility for the Canada Emergency Response Benefit (CERB) and the Canada Recovery Benefit (CRB). As a result, a number of disputes have hit the judicial system. One of the focus areas has been the prior earnings test. To be eligible for either CERB or CRB, an individual must have earned at least $5,000 of income from certain sources (such as employment, self-employment or parental benefits) in 2019 or in the 12-month period preceding the day on which the application was made (or in 2020 for CRB claims made in 2021).
Acceptable evidence to substantiate a claim can include the following:
• for self-employed individuals or subcontractors, detailed invoices for services rendered, which include the date of the service, who the service was for and the applicant’s or company’s name;
• documentation for receipt of payment for the service provided, e.g. statement of account or bill of sale showing payment and the remaining balance owed;
• documentation showing income was earned from carrying on a “trade or business” as a sole proprietor, an independent contractor or some form of partnership;
• a list of expenses to support the net result of earnings;
• proof of advertising; and
• any other documentation substantiating $5,000 in self-employment income.
Where an individual is denied benefits, they can request a second-level review from CRA. If this is still not successful, the taxpayer’s only recourse is to apply to the Federal Court for a judicial review of CRA’s decision.
In the cases below, the courts found that CRA’s decision to deny benefits was reasonable. In one case, the court stated that the above list of acceptable proof to substantiate a claim is not an exhaustive list and that CRA may ask for further support. Specifically, the Canada Recovery Benefits Act states that “an applicant must provide the Minister with any information that the Minister may require in respect of the application.”
The taxpayer claimed to have earned $5,250 from tutoring activities in January and February 2020; however, he ceased operations shortly after due to COVID-19 and applied for CERB. No business income was reported in 2019. The taxpayer tried to prove his earnings of $5,250 by providing invoices for tutoring on which the word “paid” was stamped. The CRA agent was unable to match the names and addresses on the invoices to those on CRA’s computer systems. Also, the taxpayer could not support that the amounts were paid; the taxpayer argued that the amounts were paid in cash and never deposited into his bank account. The Court ruled that the taxpayer did not provide sufficient support to demonstrate that he actually earned the amounts.
In a similar case, the taxpayer was unsuccessful in supporting her alleged earnings of $5,350 in the twelve-month period prior to application regarding home services (cleaning, food preparation, washing dishes, etc.). The taxpayer did not provide invoices for the alleged earnings or bank statements showing the deposits, both of which the agent stated would be needed to verify the prior period income. The Court agreed with CRA that a taxpayer’s notice of assessment including the relevant income was insufficient to substantiate that the prior period earning requirement had been met.
Where eligibility for these supports is at risk, make sure that documentation is retained which demonstrates both the performance of an income-earning activity and also the receipt of funds.