Without a doubt, the Canada Emergency Response Benefit (CERB) is a novelty. The Canada Revenue Agency (CRA) has been dishing out billions of dollars in emergency money to people affected by COVID-19. But is the benefit program a government success or failure?
Merits of CERB
The federal government is overly generous if you look at the disbursements to-date; total payouts reached $41 billion. Displaced employees, workers, and self-employed individuals can receive $2,000 per month for up to four months, retroactive to March 15, 2020.
In the absence of CERB, many Canadians will be in financial misery during the pandemic. It will help if you have money to spend on necessities while on lockdown. CERB addresses the need and somehow lessens the economic burden.
Misgivings on CERB
Many applicants are unaware that CERB is a taxable benefit. You will receive the full amount from the CRA, but pay the tax due in 2021 when you file your tax return for the income year 2020. Thus, you will have to save up for the tax if you spend your entire CERB.
Sadly, it appears that the maxim “honesty is the best policy” doesn’t always apply to CERB. There are people taking advantage of the benefits program. The CRA is not validating claims for now and perhaps will do the back-end clean-up next year.
The CRA is now on the lookout for red flags to detect fraudulent claims. The tax agency even has a snitch line where you can call to report suspected fraudulent CERB recipients.
Some double-dip or receive CERB and salary at the same time, whether consciously or not. The money is for those who need financial support the most. Others are benefiting because the CERB is more than the income they were receiving at work.
Because of CERB, resourceful Canadians can use their savings to invest. An $8,000 investment can generate additional income. Risk-averse investors with limited capital can park their cash in a blue-chip stock like Bank of Nova Scotia (TSX:BNS)(NYSE:BNS).
The share price of the third-largest bank in Canada rose despite a 41% erosion in profit in the Q2 fiscal year 2020 versus the same period last year. BNS set aside $1.85 billion for bad loans. All Big Five Banks deem it necessary to increase loan loss provisions.
BNS CEO expects the business in the bank’s core markets to decline for the rest of 2020. He is optimistic about BNS’s return to growth in 2021 as the coronavirus gradually abates. The credit loss provision, however, will remain high at the moment.
Owning BNS shares should be profitable for would-be investors. This bank stock is paying a hefty 5.96% dividend. The dividends are safe as BNS maintains a payout ratio of less than 60%. Besides, the bank will not tarnish its dividend track record of 188 years. Your $8,000 can earn for you $476.80 in passive income.
A success, not a failure
The positives outweigh the negatives when you try to grade CERB. Many will be eternally grateful for the federal aid. But for dishonest claimants, CRA scrutiny is coming.