May 21: TAX UPDATE Response to COVID-19

Recently the government announced a number of updates to the federal subsidy programs. Here is an overview of the latest changes from our accounting partner, MNP.

 

1. Canada Emergency Business Account (CEBA)

On May 19th, Prime Minister Justin Trudeau announced an expansion to the eligibility criteria for the CEBA. These changes allow increased accessibility to the program, providing cash flow support to more small businesses during the COVID-19 pandemic.

 

Launched on April 9, 2020, the CEBA provides interest-free loans up to $40,000 to small businesses that have experienced diminished revenues due to COVID-19, but face ongoing non-deferrable costs such as rent, utilities, insurance, taxes, and employment costs. Businesses with 2019 payroll between $20,000 and $1.5 million are eligible for the program. Twenty-five per cent of this loan is forgivable if repaid by December 31, 2022.

 

Expanded Eligibility

The CEBA has been expanded to reach more business owners, such as sole proprietors receiving income directly from their businesses, businesses that rely on contractors, and family-owned corporations that pay employees through dividends rather than payroll.

 

To qualify under the expanded eligibility criteria, applicants with payroll lower than $20,000 would need:

 

  • a business operating account at a participating financial institution;
  • a Canada Revenue Agency business number, and to have filed a 2018 or 2019 tax return; and
  • eligible non-deferrable expenses between $40,000 and $1.5 million; eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance.

 

The Government also intends to propose solutions for business owners and entrepreneurs who operate through their personal bank account, as opposed to a business account, or have yet to file a tax return, such as newly created businesses.

 

Additional details on the CEBA, including the launch date for applications under the new criteria, will be released in the coming days.

 

 2. Canada Emergency Commercial Rent Assistance (CECRA)

On May 20th the Prime Minister announced that application documents and updated criteria for the CECRA for small businesses are now available, and that the program will be opened for applications beginning on May 25th through the Canada Mortgage and Housing Corporation website.

 

The CECRA provides relief for small businesses experiencing financial hardship due to COVID-19. It offers unsecured, forgivable loans to eligible commercial property owners (whether they have a mortgage on their property or not) to reduce the rent owed by their small business tenants. The loans will cover 50 percent of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May and June. The loans will be forgiven if the property owner agrees to reduce the small business tenants’ rent by at least 75 percent. The small business tenant would cover the remainder, up to 25 percent of the rent.

 

To qualify for CECRA:

Small business tenants must attest to their eligibility with the program requirements:

 

  • gross rent in a given location is less than $50,000 per month; annual revenues are less than $20 million (at the ultimate parent level); and the business has incurred at least a 70 percent drop in pre-COVID-19 revenues.

 

Property owners must attest that the information provided in their application is correct and that they meet the eligibility requirements of the program:

 

  • a legally binding rent reduction agreement for the period of April, May and June 2020 has been entered into, reducing an impacted small business tenant’s rent by at least 75 percent;
  • the rent reduction agreement with each impacted tenant includes:
  • a moratorium on eviction for the period during which the property owner agrees to apply the loan proceeds; and
  • a declaration of rental revenue.

 

CECRA Application

The application portal will open on May 25, 2020. As a large volume of applications is expected, the Government developed a staggered approach to registration according to the province where the property is located. Once registered, the portal will be available 24/7 for applicants to input data and upload documents. Further information on the CECRA and its application process can be found here.

 

3. Canada Emergency Wage Subsidy (CEWS) / Temporary Wage Subsidy for Employers (TWS)

Further guidance has been provided by the Canada Revenue Agency (CRA) for entities eligible for both the CEWS and TWS.

 

Where an entity is eligible for both subsidies, all amounts claimed by an employer under the 10 percent TWS for remuneration paid in a specific claim period reduce the amount available to be claimed under the CEWS for the same period. Income taxes deducted with respect to the remuneration paid are offset by the value of the TWS in that period; if income taxes are insufficient to fully offset the TWS, future payroll remittances may be reduced to benefit from the subsidy. However, in such a situation, the CEWS for that period must be reduced by the entire amount claimed under the TWS (i.e. the reduction is not limited to the payroll remittances withheld from employees).

 

Election to Reduce TWS

The CRA has introduced an election to reduce the prescribed percentage for calculating the TWS. If an eligible employer completes their CEWS application and does not enter any amount for the TWS, the CEWS will be determined as if the employer is electing 0 percent as the prescribed percentage for calculating their TWS and requesting the maximum CEWS. In this situation, the employer does not reduce the amount of federal, provincial, or

territorial income tax withheld from its employees for that period. However, the eligible employer will need to indicate the 0 percent election on the self-identification form under the 10 percent temporary wage subsidy program.

 

What Does This Mean?

Government support programs continue to evolve throughout the COVID-19 pandemic and we want to help you stay informed.

 

CDSPI is dedicated to providing relevant information to help you navigate these challenging times. We invite you to contact an investment planning advisor* with any questions about these programs.

 

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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