How to handle your finances when CERB ends

Photo by Jan Kopřiva on Unsplash

Nick was doing deliveries for a friend with a catering service prior to the pandemic. In March, he applied for another driving job. “That would have fit well with my parental duties and freelance writing gigs.” he says. “The guy was ready to give it to me right then and there, but the company that contracted him put things on hold while they waited to see where this pandemic was going. “We’re still waiting.” “We” includes Nick’s wife, Nora, who also had to put a lot of plans on hold thanks to the COVID-19 pandemic. (Their names have been changed to protect their privacy.) An alternative health practitioner, she had recently self-published a book and had plans to do a regional promotional tour. “She was still seeing clients thanks to her already being set up for virtual sessions,” says Nick. “[In July] she saw her first in-person client since March, adopting the same protocols as registered massage therapists to keep everyone safe.” While Nora wasn’t eligible for government financial aid because she was still making money, Nick says he applied for the Canadian Emergency Response Benefit (CERB) as soon as it was available. He’s been using it to pay bills and do some needed car repairs. He’s been applying for work and trying to save as much from CERB as possible, but he, like many Canadians receiving CERB and other emergency benefits, is concerned about what’s going to happen when it runs out.

Understanding CERB

The federal government launched CERB in March with the intent of providing financial support to Canadians who were directly affected by COVID-19 and lost their income. The program gives eligible people $2,000 for a four-week period starting from March 15 and the last period ending on September 26. Each period is four weeks long and you can apply to up to a maximum of six periods. Nearly nine million Canadians applied for CERB. That’s approximately 25% of Canada’s total population. While you’re getting CERB, you can earn income but there is a limit on how much you can earn. If you earn too much, you may need to return the payment you received during that period. That doesn’t affect your ability to receive CERB during another period, but it may affect your ability to cover bills with your existing cash flow when it comes time to repay the CERB benefit. Then there’s taxes on the money. While the government is giving the money without deducting the taxes upfront, it isn’t tax-free. Recipients will have to declare the money as income and pay taxes on it depending on their total gross income for the 2020 tax year. On July 31, the federal government announced that it will create a transitional benefit for people who were on CERB but don’t qualify for employment benefits (EI). This benefit, meant for contract and gig workers, will resemble EI. Training will be offered and people who use this benefit will be able to work more hours than on CERB without having to worry about a clawback of benefits. More details are expected to be announced soon, including length of the benefit, the amount and tax expectations. Certified Financial Planner Shannon Lee Simmons has been spending a lot of time answering questions about COVID-related government benefits for her clients. There are options for what to do when CERB and this new benefit end, she says but they depend on what assets you have, how much debt you owe, and what position you will be in in the long-term. Here are some strategies for protecting yourself financially. You may find that you’re already doing many of these things:

Slash your expenses

“I have seen a real shift in spending behaviour since the pandemic started,” says Simmons. “In March and April I saw so much emotional spending—and not in a bad way. I never made anyone feel guilty about it. People were buying expensive coffee machines, the Peloton bike and things trying to make their life feel normal.” She says that as time passed, people stopped panic-buying and are being more mindful of how they spend their money. They’re cutting back on their needs and focusing on putting it away just in case there’s a second wave of COVID-19 and more layoffs.

Look to your savings first

An emergency fund—if you’ve had the foresight and the good fortune to build one—by definition is a financial resource to dip into when you need to top up your income, or are faced with a surprise expense, like a roof repair. Curiously, though, Simmons says, “I find a lot of fear around using saving. People are more comfortable and likely to use a line of credit to bail themselves out of an emergency.” While using a line of credit after CERB runs out is completely justifiable, she says, if you have savings and are wondering whether to use it versus a line of credit, she suggests taking the option that keeps you from adding to your debt.

Take advantage of low interest rates

If you’re a homeowner who’s paid down a chunk of your mortgage, lining up a home equity line of credit (HELOC) is a good idea right now because interest rates are low, says Simmons. If you aren’t in a position to apply for a HELOC, consider an unsecured line of credit. While the rates aren’t as low as a HELOC because the funds you borrow are not backed by an asset, an unsecured line of credit is still much cheaper than the standard rate on credit cards.

Tap your TFSA (but not your RRSP)

If you have money in a non-registered investment account or a tax-free savings account (TFSA), taking some money out so you can pay bills or avoid taking on more debt is fine to do. “Ideally you’d have a non-registered account so if it was in a loss position, at least you can carry that loss forward against future capital gains.” You can do this on a future income tax return. No non-registered account? Then you might want to look at taking some funds from your TFSA. But if that involves selling investments, Simmons says, get some advice on whether you’d be locking in a loss by taking that money out—and how big the loss would be. Withdrawing from your Registered Retirement Savings Plan (RRSP) should be a last resort, says Simmons, because you will pay taxes on the withdrawal. If the value of your investments is down, you’ll also lose money if you sell those assets—whereas if you sit tight, you have a good chance of recouping that value, and more, by continuing to holding your investments over the long term.

Refinancing your home

Refinancing your mortgage when rates drop can be a helpful money-saving tactic, though homeowners need to look at the whole picture, not just the rate savings. Simmons explains it’s important to run the numbers (you can ask your lender or financial advisor to do this) to make sure the savings aren’t eaten up by penalties, which can vary from one mortgage agreement to another. But if refinancing is, indeed, worthwhile, it’s also a way to free up cash by way of lower payments, and leverage any equity in a HELOC.

Planning for the future

Nick and his family are trying to take it a day at a time. “There is some low-level panic about the future always on the horizon, and putting off any major financial decision because it’s impossible to know what’s coming next,” he says. If Nick can’t find work before CERB ends, he and his wife do have options: They have about $100,000 in investments that they can draw on as a last resort. Despite the stress, Nick is still able to see their silver lining. “On the plus side, we have each other and three kids who appear to be dealing with masks and their loss of summer like the camps, outings, et cetera, with much resilience. We have friends who are single parents with special needs kids. I don’t know how they’re keeping their sanity.” MORE ON COVID-19:

Comments Cancel reply

John Washington says:

September 21, 2020 at 1:23 pm

I need further clarification with the statement you made: ““Ideally you’d have a non-registered account so if it was in a loss position, at least you can carry that loss forward against future capital gains.” You can do this on a future income tax return.” How does that actually work? I currently have unrealized losses of over $8K in my direct trading account (TFSA), if I went ahead and sold my shares and lose $8K the government will take that into consideration and reduce my taxable income next year by $8K?

Reply
1. Sandra E. Martin says:
  
  September 22, 2020 at 9:26 am
  
  Hi John,
  A TFSA is a registered account, so you cannot claim losses incurred within your TFSA on your income tax return. This post offers more information: https://www.moneysense.ca/save/investing/tfsa/reset-tfsa-contribution-room
  
  Reply
Edward HC Graydon says:

June 12, 2021 at 7:15 am

I think at this time in Canadian history big changes could take place for many Canadians if the Canadian government under Justine Trudeau where to register CERB payments that where paid back in full and actually presenting an accurate public record of those who paid back CERB .

The Canadian Goverment should publicly detail the date of receipt by adding this information into credit bureaus for those that might have paid in full.

CERB was issued on a “trust basis” it was open to every Canadian who believed he or she was entitled or in need ..Basically it was at first convoluted and ideologically driven but it was available for all Canadians. Some of the amounts that where extended where quite high at first close to $14,000 dollars it is for this reason Justine Trudeau should instruct his finance minister to immediately make public those that received regardless of how? Who paid .And this would be done by reporting the time it took to pay back once received?

I really think because the CERB checks where basically a verbal promissory note they should appear as paid back in full with the Credit Bureaus such as Equifax . I think they should report for a few different reasons and one intails the idea or premise of a China and their social credit system. It would be a good political move to add those that would like it to appear. As it is a reference to their good character!

It is difficult for many to apply the discipline that was needed to send it back …But many did and the amount borrowed should reflect as a line of credit that was paid in full? As it is my opinion those that paid who where in fact not billionaires but many of Canada’s hard hit during covid 19 lock downs deserve to be recognised for paying revenue Canada back and it should reflect the real credit worthiness by showing to all creditors in a Equifax consumer discloser . This small but hugely important move could very well stimulate spending and the economy of Canada.

Truly

Edward HC Graydon
Graydon Investments Group LTD

PS ! Although I am Canadian I believe the general idea could be applied to the American stimulus plan as well as both are in need of a financial injection of sorts based on credit

Reply
Edward HC Graydon says:

July 18, 2024 at 6:27 am

The Canadian Revenue Agency announced Thursday that it will begin sending warnings in July that could lead to legal action against people with outstanding COVID-19 benefit overpayments who have been unresponsive or unco-operative so far, yet who have the means to pay.
“The CRA has a progressive collection model to ensure all reasonable efforts to recover COVID-19 benefit debts to avoid placing undue hardship on individuals. When COVID-19 benefit debts remain unpaid, the CRA follows a process of responsible enforcement,” the agency said in a statement.

Because all reasonable effort was actually given by the Government of Canada to those that collected CERB would it not be in the best interests to partner with the major credit bureaus ? Would the fear of exposer by way of making public or at least adding the derogatory information or at least the threat of adding late payments to the credit bureaus be the best option while also publicly in a retroactive manner adding those that paid in full.

Would Canadians who accepted the terms of the CERB program and who paid in full not want at this time in history to be seen as having paid in full? Discloser of who paid would help in the implementation of a social credit score.

Turn a negative into a positive and help those who paid in full be recognized by all lending financial institutions as to how they handle their personal finances under abnormal circumstances .

Make it happen for the well being of Canadians who participated in good faith while turning the Canadian economy around by making it easier for those that paid to obtain credit in an easier manner moving forward.

I really think it is time to take this issue seriously!

Edward HC Graydon

Reply
Edward HC Graydon says:

September 10, 2024 at 6:13 am

Mr Mark Carney !

In todays paper it stated you have decided to join the liberal party of Canada’s economic development team.
If I might suggest you consider the idea of working closely with the major two credit bureaus in Canada to help stimulate the Canadian economy by way of individual Canadians who paid back CERB monies in full.
Please find attached my basic synopsis and general idea in principal that was previously posted to Gates Notes.

Since 1945, Canada and the World Bank Group have worked together with other member governments to finance projects, design policies, and deliver programs with the goal of ending poverty and creating a world based on the principles of sustainable development.

To the World bank!

Today I called your offices in New York and my conversation was recorded , I write to you out of reaction to issues surronding CERB and the issuance of it! Too many including myself the original idea of CERB in response to lockdowns seemed not totally without merit, Had the lockdowns taken place without the promise of financial reimbursement it might have appeared less contrived . But it happened and the steps taken have become a reality and history will judge the responses.

Please
It is out of the stated goal of the World bank that I write this ! But it is my opinion a total lack of insight on how to better society when it has come to the response of the

Reply
Flag as not constructive
Edward HC Graydon

53 days ago
Canadian government and CERB ! Regardless of how one received the funds the fact that many have returned it would indicate a moral compass that should be celebrated as a positive human character trait.
It is my opinion a lack of political insight when the opportunity to work and improve the reputations of those Canadians that paid in full is not recognized.

Personally I believe the world bank should reach out and support the idea of helping implement a response to those that paid back CERB . Those that paid should be recognized for their actions as financially prudent. It would assist in boosting the economy by improving the credit scores of those that paid. Who would not want to have this attached to their credit report ? It is the ultimate understanding of what constitutes good public behaviour and these actions might be the banking industries best barometer of credit worthiness while helping the World Bank achieve lifting those North Americans effected by poverty out, by improving thier financial reputation.

It is the answer for those that contemplate the introduction of a social credit score while helping Canadian society as a whole. It might be the Trojan horse the World bank has been looking for.

Why not turn a negative into a positive?

Have a great day

Reply
Flag as not constructive
Edward HC Graydon

12 days ago
In the United States PPP loans that have not been paid back are being collected by the American government and web sites have been created showing the businesses that have not yet paid back or PPP loans that where acquired on false pretence or by fraudulent means this is similar to the Canadian CERB program . My response to The World Bank deals with those that paid in full with little or no issues? Would it not be in the best interests of both American and Canadian governments to make public those that paid in full ,is this particular aspect of PPP and CERB loans more of an issue that should be focused on moving forward.

Would publishing the results of those that paid be the answer in helping resolve the issues of poverty ? Does showing the positive side of human nature provide a better understanding of the American and Canadian financial astuteness when it comes to financial literacy.

Would it be in The World Banks interest taking into account the World Banks stated goal in reducing poverty around the world regardless of country to promote those that paid in full ?

Would it be a more responsible approach to promote the positive rather than the negative !

As one seems more conducive to promoting the positives of human nature and this seems at least to myself a better way to gain control of the economy while helping actually simulating it from the ground floor up.

Poverty can be eradicated if the will to help show both sides exists .

This will help stimulate the economy by improving the credit ratings of those that paid in full and within the terms set out by the Governments of both the United States and Canada

Reply