Hoping to prevent what may otherwise be an inevitable economic collapse resulting from measures taken to curb the spread of COVID-19, governments are implementing monetary, fiscal, and other policy changes and initiatives to keep households, businesses and markets afloat. Generally, these changes and initiatives recognize the old adage that cash is king. Without cash, businesses cannot pay their bills or employees, and would not be able to continue to provide their products and services currently or when demand returns.
In this article, current as of May 19, 2020, we will review some of the Canadian government’s fiscal and tax offerings that may be available to businesses to assist with their cash-flow survival exercise.
Canadian federal government tax and fiscal measures
Over the past several weeks, the Canadian government has introduced a number of measures designed to ease the negative financial impacts Canadian businesses will experience as a result of COVID-19. The main measures introduced by the Canadian government are described below.
1. 75% Canada Emergency Wage Subsidy
The Canada Emergency Wage Subsidy (CEWS) is a taxable subsidy designed to enable employers to keep employees on payroll, re-hire workers that were previously laid off, and hire new workers during the COVID-19 pandemic. Eligible employers are able to apply for the CEWS and receive up to $847 per employee per week for up to 12 weeks from March 15 to June 6, 2020. To qualify for the CEWS, eligible employers must, among other conditions, have a decline in revenues of 15 percent in March 2020, and 30 percent in April or May 2020, when compared to either (i) the same month of the previous year, or (ii) an average of revenues from January and February 2020. For more information, please read Dentons’ Backgrounder on the CEWS here. On May 15, 2020, it was announced that this program would be extended until the end of August 2020.
2. 10% Temporary Wage Subsidy
The 10% Temporary Wage Subsidy (10% Subsidy) is a taxable subsidy that allows eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA). The 10% Subsidy is equal to 10 percent of the remuneration paid from March 18, 2020, to June 19, 2020, up to $1,375 for each eligible employee to a maximum of $25,000 total per employer.
3. Canada Emergency Business Account Loans
The Canada Emergency Business Account (CEBA) loans are interest-free loans of up to $40,000. They are available for small businesses and not-for-profits to help cover their non-deferrable operating costs. To be eligible, the borrower must have paid total employment income between $20,000 and $1.5 million in 2019. If the borrower repays the balance of the loan on or before December 31, 2022, 25 percent (up to $10,000) of the loan will be forgiven. The forgiven amount will likely be taxable as government assistance. On May 19, 2020, it was announced that borrowers with payroll lower than $20,000 may qualify if they have a business chequing account at a participating financial institution, have a CRA business number, filed a 2018 or 2019 tax return, and have non-deferrable operating costs between $40,000 and $1.5 million.
4. Canada Emergency Commercial Rent Assistance
The Canadian Emergency Commercial Rent Assistance (CECRA) program will effectively lower rent by 75 percent for eligible small businesses that have been affected by COVID-19. The CECRA program will provide forgivable loans to qualifying commercial property owners to cover 50 percent of three monthly rent payments that are payable by eligible small business tenants who are affected by COVID-19, with 25 percent of the rent payments being covered by the commercial property owner and the remaining 25 percent payable by the eligible small business tenant. For more information, please read Dentons’ summary here.
5. Canada Emergency Response Benefit
The Canadian government is providing the Canada Emergency Response Benefit (CERB) in the amount of $2,000 every four weeks for up to 16 weeks to eligible workers who have lost their income due to COVID-19. The CERB will be taxable income of the recipient.
6. Income Tax Payment Deferrals
The CRA and Revenu Québec have extended the payment date on most income tax balances and installments due. Individuals, corporations and trusts who have an installment or balance due between March 18, 2020 (March 17, 2020 for Revenu Québec) and August 31, 2020, may defer payment until September 1, 2020, without interest or penalty.
7.Goods and Services Tax / Harmonized Sales Tax Payment Deferrals
Goods and Services Tax / Harmonized Sales Tax (GST/HST) remittances and payments to the CRA, including installment payments, that will be owed between March 27, 2020, and June 1, 2020, may be paid or remitted by June 30, 2020, without interest or penalty. The same applies to GST/HST and Québec Sale Tax amounts due to Revenu Québec.
8. Business Credit Availability Program (BCAP)
This program provides access to credit through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC). It includes loan guarantees and a co-lending program for small and medium-sized enterprises, as well as more robust financing and guarantee programs available to certain medium-sized enterprises.
9. Large Employer Emergency Financing Facility (LEEFF)
This program is a bridge financing facility targeted at Canada’s largest employers whose needs are not being met through conventional financing. Businesses must comply with certain requirements including, minimum operational size, minimum financing amounts, economic protection for workers, limits to shareholder/executive compensation, environmental protection, tax compliance, and reporting requirements. The program is intended to fairly benefit all such businesses through standardized economic terms and conditions. For more information, please read Dentons’ summary here.
If you have any questions regarding any of the programs summarized above, or would like us to assist you or your business with reviewing what options are available to you, please contact any member of Dentons’ Tax group in Canada.
- Employers that pass the revenue test for one qualifying period will automatically pass the revenue test for the immediately following qualifying period. ↩
- Individuals (excluding trusts), partnerships, non-profit organizations, registered charities, and Canadian-controlled private corporations (that have a business limit for their last taxation year that ended before March 18, 2020 greater than nil) may qualify.↩
- Any amounts received by an employer under the 10% Subsidy will reduce the amount the employer is eligible to receive under the CEWS.↩
- The loan must be used on non-deferrable operating expenses of the borrower, and may not be used to fund the prepayment or refinancing of existing indebtedness, payments of dividends, or other distributions and increases in management compensation.↩
- Workers must be at least 15 years old and reside in Canada. They cannot have voluntarily quit their job and they had to have earned income of at least $5,000 in 2019 or in the 12 months prior to the date of their application. Workers can also earn up to $1,000 per month while collecting the CERB.↩
- This applies only to payments due under Part 1 of the Income Tax Act (Canada) or the Taxation Act (Québec). ↩
- The CRA’s income tax filing and payment date extensions can be found here: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html. Revenue Québec’s income tax filing and payment date extensions can be found here: https://www.revenuquebec.ca/en/coronavirus-disease-covid-19/relief-measures-for-individuals-and-businesses/↩
- More information on the CRA’s deferral of GST/HST tax remittances amid the COVID-19 pandemic can be found here: https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-gst-hst.html. ↩
- More information on BCAP can be found here: https://www.canada.ca/en/department-finance/economic-response-plan.html.↩
- LEEFF is available to for-profit business and certain not-for-profit businesses with annual revenues greater than $300 million dollars. LEEFF is not available to the financial sector, businesses that have the capacity to manage through the crisis, and businesses that are in active insolvency or restructuring proceedings.↩
- More information on LEEFF can be found here: https://pm.gc.ca/en/news/news-releases/2020/05/11/prime-minister-announces-additional-support-businesses-help-save.↩