It’s been nearly six years since COVID benefits were introduced, yet we continue to see cases coming before the courts involving various taxpayers who, having applied for and received COVID benefits, are now being asked to repay them.

One of the most unusual cases, decided by the Tax Court late last month, involved the estate of a deceased taxpayer which was being asked by the

Canada Revenue Agency to repay Canada Recovery Benefit (CRB) payments that the deceased taxpayer had received prior to his death.

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.

Sadly, the taxpayer died in December 2021 at a young age. Earlier that year, he had received benefits of $18,600 of CRB payments. The question before the court was whether his estate was required to repay those benefits because his 2021 “income” (interpretations vary, as we will see below) was too high.

Under the Canada Recovery Benefits Act, to encourage claimants to return to work, CRB recipients were able to earn income from employment or self-employment while receiving the benefit, as long as they continued to meet the other requirements. But, to ensure that the benefit targeted only those who needed it most, recipients needed to repay some (or all) of the CRB payments if their annual net income, excluding the CRB payments, was more than $38,000. Specifically, recipients needed to repay 50 cents of the benefit for each dollar of their annual net income above $38,000 in the calendar year, to a maximum of the amount of benefit they received.

For example, if a worker received ten weeks of the CRB in 2020, at $400 per week for a total of $4,000, they would have had to repay all of the benefits received if their net income for 2020 exceeded the threshold by $8,000 (twice the benefit payment amount). In this example, the worker would have had to repay the full benefit amount if their net income (excluding the CRB itself) was greater than $46,000 (being the threshold of $38,000 plus $8,000) in 2020.

In the current case, the taxpayer held two registered retirement savings plans (RRSPs) prior to his death with a combined fair market value (FMV) of $74,353. Upon his death, there being no qualifying rollover to a surviving spouse or common-law partner, the FMV of the RRSPs, namely the $74,353, was added to the deceased taxpayer’s income for the year of death. This brought the taxpayer’s income for 2021 to a level at which all of the CRB needed to be repaid.

The question before the Tax Court was simple: what is considered to be “income” for the purposes of the CRB repayment test?

The CRB Act refers to the definition of income in the Income Tax Act, which includes the FMV of an RRSP on the date of the death. The deceased’s estate tried to argue, however, that the wording in the CRB Act says that a person “must repay an amount equal to 50 cents for every dollar of income

earned (emphasis added) in that year above $38,000 of income.” The estate’s representative argued that the deemed fair market value inclusion of the RRSP in income for the year of death “does not qualify as ‘income earned’ in that year … because that phrase suggests that Parliament must have intended such income to be limited to income from employment or self-employment – not income out of or under an RRSP.”

Unfortunately for the estate, the judge disagreed, finding that the phrase “income earned” in the CRB Act “necessarily refers to income as determined under … the Income Tax Act. It does not have the restrictive effect suggested by the (estate’s representative). Had Parliament wished to further limit the type of income that would trigger repayment of the CRB, beyond income as determined under… the Income Tax Act, it would have said so explicitly.”

As a result, the judge ordered the estate to repay the CRB of $18,600 the taxpayer had received prior to his death.

While this result, albeit harsh, may be technically correct, is it appropriate? In other words, is it sound tax and social policy to require a repayment of government benefits, which the taxpayer was clearly entitled to at the time, simply because a subsequent event (i.e. his untimely death) made him retroactively ineligible? After all, what if the taxpayer had lived just one more month, and instead passed away in January 2022 instead of December 2021? In that case, the FMV of the RRSPs would fall into the 2022 tax year’s income, meaning that the taxpayer’s estate could have kept the entire $18,600 of CRB received in 2021.

A similar result can occur in the year of death for taxpayers who were receiving

Old Age Security (OAS) payments. If they die and there is an FMV income inclusion of their RRSP or

registered retirement income fund (RRIF) in the year of death, depending on the deceased’s total income, the OAS may be retroactively clawed back. For 2025, the OAS clawback begins at net income over $93,454, and 15 per cent of every dollar of net income above that threshold is clawed back. OAS is fully eliminated once income reaches $152,062 (or $157,923 for those over 75 years of age).

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Some tax advisors attempt to plan around OAS clawbacks by strategically withdrawing funds from an RRSP or RRIF earlier than required by law (at age 72), but this means that tax is payable prematurely, which compromises the long-term tax-free growth by leaving the funds inside the RRSP or RRIF.

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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