How to handle your finances when CERB ends

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.”

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• Managing your mortgage during COVID-19
• What should retirees do with their investments amid COVID-19
• Investing in time of COVID-19
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