The Canada Revenue Agency (CRA) will start accepting applications for the Canada Recovery Benefit (CRB) from Monday, October 12. The CRA will give all eligible applicants $900 after deducting a 10% tax at source from the $1,000 CRB amount for two weeks. Before you apply for the benefit, you might want to look at the prerequisites of getting the CRB, or you might even risk losing out on your benefit amount for 10 weeks.
The CRB intends to put Canadians back to work
The Justin Trudeau government’s intention behind creating a separate benefit was to encourage Canadians to return to work. The Canada Emergency Response Benefit (CERB) came under fire as it disincentivized Canadians to return to work.
The CERB had a requirement that you will not get the $2,000 benefit amount if you earn more than $1,000 for the period you are claiming CERB. Hence, CERB recipients started refusing to return to work if the employer paid them less than $2,000.
In the COVID-19 economy, the salaries may not be as competitive as they used to be in the pre-pandemic economy, as businesses are struggling with weak revenue. The government can’t pay for every unemployed Canadian’s living expenses for a long time. To get the economy rolling again, Canadians have to return to work, even if the pay is slightly lower.
The CRB does just that. It incentivizes people who take up the job even at a reduced salary. You can apply for CRB if you don’t have a job and can continue getting the benefit if you restart work but your income has been reduced by 50%.
The CRA will also give you cash benefits if you are working and have to take unpaid leave (which reduces your weekly work hours by 50%) because of sickness and caregiving.
For instance, Jane earned $1,000 a week in 2019, but she lost her job in February. After months of unemployment, she starts working as a freelancer and earns around $450-$500 a week. She can get CRB. She can also get the Canada Recovery Sickness Benefit (CRSB) if she falls sick or Canada Recovery Caregiving Benefit (CRCB) if she has to care for a dependent.
The CRB penalizes for refusing work
The CRA is incentivizing Canadians who returned to work at a lower salary or are already working. At the same time, it is penalizing those who refuse to take up reasonable work. If you refuse work, the CRA will lock your CRB application window by 10 weeks and also reduce your CRB tenure by 10 weeks to 16 weeks. The idea behind this penalty is to create a disadvantage for refusing work.
Don’t rely on CRA benefits to pay your bills
It is not a good financial practice to rely on the CRA benefits to pay your bills. This is a nice time to create a passive source of income with some of the CRB money. The trick is to find a good quality stock that can grow your money in a few years and invest in it through the Tax-Free Savings Account.
Those who invested $400 from their first CERB payment in Enghouse Systems (TSX: ENGH) earned $180 in six months. Enghouse operates like a private equity firm for the software industry. It acquires small software companies that cater to contact centres, telecom, transportation, and geographic information systems. A new acquisition helps it expand its recurring revenue from maintenance contracts and subscriptions and reduce its costs.
The problem with this model is the huge debt that companies take to fund acquisitions. But that is not the case with Enghouse. It reinvests its cash flows to acquire more companies and increase recurring revenue. At the end of July, it had $228 million in cash reserves and less than $1 million in long-term debt. This reinvestment cycle has a compounding impact on its returns. Hence, its return on equity is 21.8%.
Enghouse is now broadening its scope by acquiring companies in other verticals. Its business model and cost and revenue synergies would continue to drive the stock in the mid-term. The stock has surged at a CAGR of 20% between 2015 and 2019. If it maintains this growth rate, it can double your money in five years.
