For some of the poorest Canadians, taxes owed on the Canada Emergency Response Benefit (CERB) will be the reason they remain below the poverty line this year, according to a new report by the Canadian Centre for Policy Alternatives.

For some of the poorest Canadians, taxes owed on the Canada Emergency Response Benefit (CERB) will be the reason they remain below the poverty line this year, according to a new report by the Canadian Centre for Policy Alternatives.

CCPA senior economist David Macdonald said it’s no surprise that CERB will be a big factor in tax season for many people, as we’ve known from the start that CERB was not taxed at the source.

That’s why, as we approach tax season, Macdonald wanted to use the available data and Statistics Canada modelling software to quantify that tax hit, and find out what it would mean for the lowest-income CERB recipients.

According to Macdonald, there will be 422,000 CERB recipients who will be living below the Market Basket Measure poverty line despite having received the benefit. Those recipients will owe a total of $232 million on CERB come tax time. Around half, or 208,100, will be close to that line — so close that if they didn’t have to pay taxes on the CERB they received, an average bill of around $550, they would be lifted above said poverty line.

"Put another way, CERB-related taxes, owed well after they received the benefit, will be the reason why they’ll remain below the poverty line," reads the report.

Income taxes owed on CERB will total $14.4 billion, according to the report, $5.7 billion of which will be income for the provinces and territories.

Macdonald is recommending a break for low-income CERB recipients, a scalable deduction from their total 2020 income of some or all of the CERB they received. That would reduce their tax bill and help many who don’t have the money to pay a large tax bill. He estimates such a deduction would cost only around half a billion dollars, reducing the total government income from CERB taxes to $14 billion instead of $14.4 billion.

"In the grand scheme of things, it wouldn’t cost a tremendous amount to … not force them to pay the tax on this," he said. "You could design an exemption, I think, that would target particularly lower-income families so that they don’t have this tax bill hanging over them.

"I think that it makes some sense to give low-income families a break."

It’s important to note that Macdonald’s simulation is for taxes owing on CERB only, not the other emergency benefits. The calculations are also post-tax return, meaning they account for any credits, deductions or other benefits CERB recipients may receive when they file their taxes, such as the Child Care Benefit.

This modelling also does not take into account Canadians who applied for CERB "in good faith" and found out later they weren’t eligible, said Macdonald — many of whom are low-income as well. He believes that those under the poverty line who got CERB but did not qualify, and who did not apply with the intent of fraud, should also receive amnesty — something anti-poverty advocates, social policy experts and the NDP have also called for.

The government has made some concessions to help CERB recipients, Macdonald notes. There was a debacle that saw self-employed Canadians confused over their eligibility; the government has agreed they won’t need to repay the benefit they received. Also, CERB recipients with incomes below $75,000 won’t pay interest in 2020 for taxes owing.

But even for the Canadians in the lowest income brackets, though the tax rate can be less than 10 per cent, most won’t have saved up for tax season, and will have a tax bill despite any deductions or credits they qualify for, said Macdonald.

"I’m concerned that they are forced to repay this money that I’m sure they’ve spent," said Macdonald, likely on necessities like food, rent and other expenses.

For families and individuals in the lowest 10 per cent of pre-pandemic income — less than $21,000 a year after tax — CERB may have been a boost, the report notes, more than offsetting their average COVID-19-related income loss. For those in the next 20 per cent, making between $21,000 and $39,000, it basically matched their loss in earnings. And for those making more, or the top 60 per cent, CERB did not match the income loss the pandemic created.

But Macdonald’s report argues that the tax owed on CERB owed by many in the lower income brackets stands to offset some of the positive impact CERB had on their financial health last year.

It’s also important to note that Macdonald’s analysis only concerns tax on CERB. While the three yearlong emergency benefits and the temporarily adjusted EI program are taxed at the source, meaning tax is deducted from the payments, they’re taxed at a rate that could change depending on your total income for 2020. That means you may have to pay more taxes on them, said Macdonald — or you could get a refund.

Rosa Saba is a Toronto-based business reporter for the Star. Follow her on Twitter: @rosajsaba