CERB/CRB DENIAL FOR OWNER-MANAGER OF A CORPORATION

A June 3, 2022 French Federal Court case (Maltais vs. AGC, T-835-21) considered an application for judicial review of CRA’s denial of $14,000 of CERB (Canada Emergency Response Benefit) and $2,000 of CRB (Canada Recovery Benefit) for an 81-year-old taxpayer that owned and operated a real estate agency.

Before 2019, the taxpayer did not report any employment income from his corporation, instead receiving all withdrawals as non-taxable repayments of a shareholder loan. On his 2019 tax return (filed on June 30, 2020), the taxpayer reported $6,000 of employment income, representing $500/month for 12 months. These earnings were paid in three $2,000 payments.

The case did not indicate whether a T4 slip was issued. The taxpayer argued that when the pandemic hit in 2020, given his older age in combination with infection risk, he could no longer show homes so he undertook refresher training. The taxpayer indicated that the corporation, which employed four other brokers, did not shut down operations during the pandemic, but the “turnover decreased a lot.”

To be eligible for CERB, the taxpayer must have ceased working due to COVID-19 (Canada Emergency Response Benefit Act Paragraph 6(1)(a)). However, a complete cessation of work was not required as the rules were modified to allow individuals to earn up to $1,000 for each four week period. To be eligible for CRB, the applicant must have had a reduction in earnings from employment or self-employment of at least 50% for reasons related to COVID-19 (Canada Recovery Benefits Act Paragraph 3(1)(f)). In other words, under both programs, the reduction must be directly tied to COVID-19.

CRA denied the benefits for the following reasons:

Although the taxpayer argued that he could no longer pay himself due to COVID-19, he had not paid himself before 2019, so it was not definitive that COVID-19 caused the stop. The taxpayer was not working when the pandemic hit because his last employment remuneration occurred in August of 2019. The brokerage continued to operate and generate revenues during the pandemic. If he chose to not pay himself in 2020 so that he could pay his brokers first, this was a choice on his part that was made voluntarily.

Taxpayer loses

The Court found CRA’s decision reasonable, specifically noting the following:

The taxpayer did not stop working in 2020 but rather changed the way he was working.

The taxpayer indicated that he did not look for another job because he still had a job. It was just that he simply could not do as much of his job as before. Although the taxpayer argued that a reduction in work should be sufficient, the Court opined that it was not. The work reduction must be tied to a loss of income.

Based on the evidence provided, the cessation of employment was not sufficiently tied to COVID-19.

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