June 16, 2020: Federal Tax Response to COVID-19

On June 15, the federal government announced that it will expand eligibility for the Canada Emergency Business Account (CEBA). Here is an update from our accounting partner, MNP.

 

Background:

The CEBA provides eligible businesses and certain non-profit organizations with interest-free loans of up to $40,000, to help cover their operating costs during a period where their revenues have been temporarily reduced due to the economic impacts of COVID-19. The CEBA is intended to facilitate the post-COVID resumption of normal business operations and to the extent the loan is repaid by December 31, 2022, 25 percent will be forgiven (up to $10,000). The CEBA loan can only be used to pay non-deferrable operating expenses and may not be used to fund any payments or expenses such as, prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.

 

Launched on April 9, 2020, the CEBA was originally introduced for businesses with payroll between $50,000 and $1 million in the 2019 calendar year; the federal government has since extended eligibility to include businesses with payroll between $20,000 and $1.5 million during the same time period. Businesses that qualify under these rules apply for the CEBA through their financial institution under the Payroll Stream.

 

Expanded Eligibility Rules for the CEBA:

On June 15, 2020, the government announced that beginning June 19, 2020, eligibility for the CEBA will be expanded to allow more small businesses access to the program. On Thursday, June 18, 2020, the Government announced the application process for eligible businesses under the expanded rules will not open on June 19th; no new date has yet been released.

 

This announcement allows small businesses with payroll under $20,000 in the 2019 calendar year to now be eligible for the CEBA. To qualify under the expanded eligibility rules, CEBA applicants with payroll lower than $20,000 will need:

  • A business operating account at a participating financial institution;
  • A Canada Revenue Agency business number;
  • A 2018 or 2019 tax return; and
  • Eligible non-deferrable expenses of between $40,000 and $1.5 million.

 

The expanded rules mean owner-operated small businesses previously ineligible for the program due to lack of payroll, sole proprietors receiving business income directly, as well as family-owned corporations remunerating in the form of dividends rather than payroll, will all be eligible to apply for CEBA.

 

The eligible non-deferrable expense categories include:

  • Wages and other employment expenses
  • Rent or lease payments for real estate used for business purposes;
  • Rent or lease payments for capital equipment used for business purposes;
  • Payments incurred for insurance related costs;
  • Payments incurred for property taxes;
  • Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;
  • Payments for regularly scheduled debt service;
  • Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower.

 

Applicants who qualify under these expanded rules can apply through their financial institution under the Non-Deferrable Expenses Stream.

 

CEBA applications under the 2020 Eligible Non-Deferrable Expenses Stream will follow a two-step process:

 

Step 1: Businesses will initiate applications directly at their primary financial institution where they hold their primary business chequing/operating account. The financial institution will then direct applicants to Step 2 of the application process.

 

Step 2: Following the initial application through their financial institution, applicants will be directed to a CEBA website to provide supporting documentation for the 2020 Eligible Non-Deferrable Expenses and to complete the application.

 

The government will assess application information submitted via financial institutions in Step 1, together with the supporting documentation and information provided in Step 2. If successful, the government will notify the financial institution and provide funding for the CEBA loan.

 

As part of the application process, the Borrower must acknowledge and agree that an audit may be conducted by the government or any of its agents to ascertain the veracity of the attestation with respect to the use of the funds and the eligibility of the organization under the CEBA program.

 

Government support for Canadian businesses and workers continues to evolve through the COVID-19 pandemic.

 

This situation is dynamic and government programs can change. For recent updates and relevant content, visit our COVID-19 Latest News and Updates page at cdspi.com/covid19.

 

In challenging times like these, we invite you to contact one of our Investment Planning Advisors* to find out how a financial plan can help manage uncertainty and provide peace of mind.

 

1.800.561.9401 | investment@cdspi.com

 

*Investment Advisory services are provided by licensed advisors at CDSPI Advisory Services Inc. Restrictions may apply to advisory services in certain jurisdictions.

The above information should not be considered personal financial, investment, taxation, legal, accounting or similar professional advice. For specific advice about your situation, please consult a tax, accounting, legal or financial professional.

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