ent® Chartered Professional Accountants Blog

CRA has confirmed that the forgivable portion of the CEBA loan is a form of government assistance, and as such, you will have to include it as income in the year that the loan is received. That means, if you received the loan in the 2020 taxation year, you would have to include the forgivable portion ($10,000) as income in your 2020 income tax return.

If in 2022, repayment of the loan cannot be made in full, the forgivable benefit will be forfeited and an income deduction would be available under paragraph 20(1)(hh) of the Income Tax Act. If the deduction creates a loss, you would be able to carry back the loss up to 3 prior taxation year ends to recover the income tax paid in the past.

Income Tax reference:  the forgivable portion of CEBA are taxable when received (ITA s. 12(1)(x)), but if and when repaid, are deductible when repaid (ITA s. 20(1)(hh)).

The same principle will apply to the CEBA Expansion for the additional $20,000.

OTHER ISSUES:

If your bank has set up your CEBA loan as a line of credit, it's very important for you to transfer the funds from the line of credit to your operating account. The forgivable 25% is based on the maximum balance of the loan up to December 31, 2020, (at least for the $40,000 loan). If any bank has set up the CEBA loan like a Visa or LOC it will have the same results.

The CERB, eligibility rules have been expanded to:

• Allow people to earn up to $1,000 per month while collecting the CERB.
• Extend the CERB to seasonal workers who have exhausted their EI regular benefits and are unable to undertake their regular seasonal work as a result of the COVID-19 outbreak.
• Extend the CERB to workers who have recently exhausted their EI regular benefits and are unable to find a job or return to work because of COVID-19.

These changes will be retroactive to March 15, 2020. The application portal has been updated to reflect these changes.

Essential workers

The Government of Canada will work with provinces and territories through a new transfer to cost-share a temporary top-up to the salaries of low-income essential workers that the provinces and territories have deemed essential in the fight against COVID-19.

Provinces and territories will be able to provide their low-income essential workers (those who earn less than $2,500 per month), with a top-up.

CANADA EMERGENCY WAGE SUBSIDY

This would provide a 75-per-cent wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020.

Eligible Employers

Eligible employers would include individuals, taxable corporations, and partnerships consisting of eligible employers as well as non‑profit organizations and registered charities.

This subsidy would be available to eligible employers that see a drop of at least 30 percent of their revenue (including donations received for NPOs and Charities) for the eligible periods.

Amount of Subsidy

The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020, would be the greater of:

• 75 percent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
• The amount of remuneration paid, up to a maximum benefit of $847 per week or 75 percent of the employee’s pre-crisis weekly remuneration, whichever is less.

NOTE

A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 percent of the employee’s pre-crisis weekly remuneration.

ELIGIBLE PERIOD       CLAIMING PERIOD                  REVENUE PERIOD

Period 1                     March 15 – April 11             Month of March 2020 vs 2019

Period 2                     April 12 – May 9                   Month of April 2020 vs 2019

Period 3                     May 10 – June 6                  Month of May 2020 vs 2019

How to Apply

• The Canada Revenue Agency’s My Business Account portal

https://www.canada.ca/en/revenue-agency/services/e-services/e-services-businesses/business-account.html

• A web-based application. (As soon as it is available we will post the link.)
• When applying for the subsidy, employers would be required to attest to the decline in revenue

Accounting / tax treatment

The wage subsidy received by an employer would be considered government assistance and be included in the employer’s taxable income.

Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.

Employers are required to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.

TEMPORARY WAGE SUBSIDY

See my blog on March 22, 2020

https://entaccountants.com/clients/blog/covid-19-how-to-claim-the-employer-10-wage-subsidy

The CERB provides a taxable benefit of $500 a week for up to 16 weeks. The benefit is available from March 15, 2020, to October 3, 2020. You can apply no later than December 2, 2020. The Benefit is only available to individuals who stopped work as a result of reasons related to COVID-19.

Eligibility

The benefit will be available to workers:

• You have been let go from your job or your hours have been reduced to zero;
• You are in quarantine or sick due to COVID-19;
• You are away from work to take care of others because they are in quarantine, sick due to COVID-19; and/or
• You are away from work to take care of children or other dependents whose care facility is closed due to COVID-19.

• Residing in Canada, who are at least 15 years old;
• Who has stopped working because of COVID-19 and have not voluntarily quit their job;
• Who had an income of at least $5,000 in 2019 or in the 12 months prior to the date of their application; and
• Who are or expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period. For subsequent benefit periods, they expect to have no employment income.

• You cannot quit your job voluntarily.

How to apply

Applications for the CERB will begin the week of Monday, April 6, 2020.

There are two ways to apply:

• Online with CRA My Account

• Here is the link for you to apply for CRA My Account.

https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html

• Over the phone with an automated phone service 1-800-959-2019

After you have set up your account, you will return to the site based on the schedule below. To help with the large amount of traffic CRA is asking you to apply in the following order

• Birthday:
• Jan – March    Apply Monday, April 6
• April – June    Apply Tuesday, April 7
• July – Sept     Apply Wednesday, April 8
• Oct – Dec      Apply Thursday, April 9
• Friday, Saturday and Sunday anyone can apply.

Instructions once you're in your CRA My Account

1. Go to COVID-19: Canada Emergency Response Benefit in the alert banner at the top of the page
2. Select the period you want to apply for
3. Declare that you qualify for the benefit
4. Confirm we have the right payment information

Apply again every 4 weeks

You will need to apply and confirm your eligibility for the Canada Emergency Response Benefit every 4 weeks (to a maximum of 16 weeks) if your situation continues.

Canada Emergency Response Benefit (CERB)

Getting ready to access the CERB

You can apply for the Canada Emergency Response Benefit online on and after April 6, 2020. You can get a head start by setting up your CRA My Account as soon as possible.  When you set up your account and if you sign up for direct deposit you will receive your benefit more quickly.

Here is the link for you to apply for CRA My Account.

https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/account-individuals.html

After you have set up your account, you will return to the site based on the schedule below. To help with the large amount of traffic CRA is asking you to apply in the following order

• Birthday:
• Jan – March    Apply April 6
• April – June   Apply on April 7
• July – Sept      Apply on April 8
• Oct – Dec      Apply on April 9

 Temporary wage subsidy

The wage subsidy will be available to any employer if their revenue has decreased by 30 percent as a result of the COVID-19 pandemic, that business will be eligible for the wage subsidy. The federal government has said that it will cover 75 percent of the first $58,700 of income earned, which works out to $847 per week. This subsidy will be retroactive to March 15, 2020. The Prime Minister also advised that the wage subsidy will apply to all non-profit organizations, charities, and companies of all sizes. We anticipate that partnerships and sole proprietors will also be eligible based on Bill C-13 even though the Prime Minister did not mention these employers specifically. More substantive details are expected to be announced at a later date.

COVID 19 -Canada Emergency Response Benefit (CERB)

This is a taxable benefit that would provide up to $2,000 a month for up to four months for workers who lose their income as a result of the COVID-19 pandemic. The Emergency Response Benefit (CERB) combines the previously announced “Emergency Care Benefit” and the “Emergency Support Benefits” described in my blog on Tuesday, March 24^th, 2020. The CERB will be administered by CRA through a different system than the EI system.

Qualification criteria

1. Workers, including the self-employed, who are quarantined or sick with COVID-19 but do not qualify for E.I. sickness benefits.
2. Workers, including the self-employed, who are taking care of a family member who is sick with COVID-19, such as an elderly parent, but do not quality for E.I. sickness benefits.
3. Parents with children who require care or supervision due to school closures, and are unable to earn employment income, irrespective of whether they qualify for E.I. or not.
4. Workers who are still employed, but are not receiving income because of disruptions to their work situation due to COVID-19, would also qualify for the CERB
5. At least 15 years of age
6.  A resident in Canada
7. . Have a total income of at least $5,000 from either employment; self-employment and certain EI benefits in 2019 or in the 12-month period preceding the day on which they make an application.

The application process has not yet been announced but will be made available in the first week of April 2020. As soon as it is available I will post the link.

In Addition

If you are already receiving EI regular and sickness benefits, you would continue to receive these benefits & should not apply to the CERB. If your EI benefits end before October 3, 2020, you could apply for the CERB once the EI benefits cease, if you are still unable to return to work due to COVID-19. If you have already applied for EI & your application has not yet been processed, there is no need to reapply.

The largest number of questions we have received is for clarification of the E.I. measures. We are expecting further clarification from the Federal Government. As of today here is our best understanding:

Employment Insurance -Temporary Laid-off Benefit

This is the regular E.I. benefit that is always available to employees who have been laid off. Employees must have a minimum of 700 insurable hours; a one-week waiting period; the benefit is 55% to a maximum of $573.00 per week to a max of 45 weeks. You can apply prior to the employer issuing an ROE.

Employment Insurance- Sickness/Illness including Quarantine

The employee must have 600 insurable hours. No waiting period. Benefit: 55% to a maximum of $573.00 per week for a maximum of 15 weeks. You can apply prior to the employer issuing an ROE.

Employment Insurance - Emergency Care Benefit

Provides for up to $900 bi-weekly, for up to 15 weeks for employees without sufficient insurable hours. This flat-payment Benefit would be administered through the Canada Revenue Agency (CRA) and provide income support to:

3 categories of individuals:

1. Workers, including the self-employed, who are quarantined or sick with COVID-19 but do not qualify for E.I. sickness benefits.

2. Workers, including the self-employed, who are taking care of a family member who is sick with COVID-19, such as an elderly parent, but do not quality for E.I. sickness benefits.

3. Parents with children who require care or supervision due to school closures, and are unable to earn employment income, irrespective of whether they qualify for E.I. or not.

How to apply for all E.I. Benefits

https://www.canada.ca/en/services/benefits/ei.html

Employment Insurance -Emergency Support Benefit

For the support of workers who are not eligible for E.I. and who are facing unemployment

• Implementing the E.I. Work Sharing Program, which provides E.I. benefits to workers who agree to reduce their normal working hours as a result of developments beyond the control of their employers. The CRA response to COVID 19 has extended the eligibility of such agreements to 76 weeks.

How do Work-Sharing Benefits work?

The program allows employers to temporarily reduce its employee's work schedule, by providing the employee with a portion of their reduced income.

The program is an agreement between 3 parties: 1) Employer; 2) Employee; and 3) Service Canada.

The employer and employee must agree to participate in the WS agreement. The application is then sent to Service Canada.

Who is Eligible?

Eligible employers must:

Have been in business in Canada year-round for at least two years;

Be a private business, a publicly held company, or a not-for-profit organization;

Demonstrate that the shortage of work is temporary and beyond their control, and demonstrate a recent decrease in business activity of approx. 10%;

Eligible employees must:

Be “core employees” (i.e. year-round, permanent full-time or part-time employees, who carry out the everyday functions of normal business);

Be eligible to receive EI benefits i.e. 600 insurable hours, and have paid EI premiums; and, agree to a reduction of their normal working hours and be part of a work-sharing unit.

The unit should not include employees who are necessary for business’ recovery, such as senior management, outside sales representatives etc.

The Federal Government’s special measures recently implemented in light of COVID-19 include:

Waiving the mandatory waiting period;

Support of workers who are not eligible for E.I. and who are facing unemployment.

• For additional information and application see link below:
• https://www.canada.ca/en/employment-social-development/services/work-sharing.html

Here is how to claim your rebate.

The 10 % subsidy is available to businesses, not for profits and registered charities that were in existence before March 18^th, 2020 and registered for payroll. The subsidy will be available to the qualified organizations for wages and salaries paid from March 18, 2020, to June 20, 2020.

First, you calculate 10% of the “Gross period payroll” (for the period being reported for March 2020. You have to prorate the amount to only include gross payroll from March 18^th). The 10% can only be deducted from the TAX amount owing to CRA. (Not the EI or CPP). There is no effect on the employee’s pay or deductions. The unclaimed wage subsidy can be deducted in future periods.

You must keep track of the amount of subsidy that applies to each employee to ensure that you do not exceed the maximum of $1,375.00 per employee and no more than the $25,000.00 per employer.

Accounting for the subsidy will be a reduction to the remittance due to CRA and a credit to subsidy income. 

ADDITIONAL INFORMATION FROM CRA

1. What is the Temporary Wage Subsidy for Employers?

The Temporary Wage Subsidy for Employers is a three-month measure that will allow eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA).

2. Which employers are eligible?

You are an eligible employer if you:

• are a non-profit organization, registered charity, or a Canadian-controlled private corporation (CCPC);
• have an existing business number and payroll program account with the CRA on March 18, 2020; and
• pay salary, wages, bonuses, or other remuneration to an employee.

Note: CCPCs are only eligible for the subsidy if their taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million.

The Temporary Wage Subsidy for Employers is limited to the eligible employers listed above.

3. How much is the subsidy?

The subsidy is equal to 10% of the remuneration you pay between March 18, 2020, and June 20, 2020, up to $1,375 per employee and to a maximum of $25,000 total per employer.

Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.

For example, if you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.

4. How do I calculate the subsidy?

The subsidy must be calculated manually.

For example, if you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.

5. How will I receive the subsidy?

Once you have calculated your subsidy, you can reduce your current remittance of federal, provincial, or territorial income tax that you send to the CRA by the amount of the subsidy.

Important: You cannot reduce your remittance of Canada Pension Plan contributions or Employment Insurance premiums.

For example, if you calculated a subsidy of $2,050, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.

6. When can I start reducing remittances?

You can start reducing remittances of federal, provincial, or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 20, 2020.

For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.

7. What if subsidies exceed the remittances?

If the income taxes you deduct are not sufficient to offset the value of the subsidy in a specific period, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 20, 2020).

For example: If you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.

8. Will the subsidy affect deductions from my employees?

No. You will continue deducting income tax, Canada Pension Plan contributions, and Employment Insurance premiums from salary, wages, bonuses, or other remuneration paid to your employees, as you currently do. The subsidy is only calculated when you remit these amounts to the CRA.

9. What if I don’t reduce remittances during the year?

If you are an eligible employer, but choose not to reduce your payroll remittances during the year, calculate the temporary wage subsidy on remuneration paid between March 18, 2020, and June 20, 2020. You can then ask for the subsidy to be paid to you at the end of the year, or transferred to the next year’s remittance.

10. What books and records do I need to support the subsidy?

You will need to keep information to support your subsidy calculation. This includes:

• the total remuneration paid between March 18, 2020, and June 20, 2020;
• the federal, provincial, or territorial income tax that was deducted from that remuneration; and
• the number of employees paid in that period.

The CRA is currently updating reporting requirements. More information on how to report this subsidy will be released in the near future.

11. Is the subsidy considered taxable income?

Yes. If you receive the subsidy, you have to report the total amount as income in the year in which the subsidy is received.

12. What if my business is closed?

If you did not pay salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 20, 2020, you cannot receive the subsidy, even if you are an eligible employer

On March 18, 2020, the Federal Government of Canada announced several measures, including extending the filing deadline for 2019 personal tax returns to June 1, 2020, and that any outstanding taxes owed are to be paid by August 31, 2020, without interest or penalties.

So the question arises: Should you delay filing your tax return?

Our recommendation is that you file as normal.

Here are some items to consider:

• No interest or penalties will accumulate on balances owing up until August 31, 2020.
• If you wait to file until the deadline of June 1, 2020, your entitlement for GST and the Child Tax Benefit will not be calculated correctly. So to ensure that your benefit is calculated correctly for the 2020-2021 year we recommend that you file by April 30, 2020.
• If you are expecting a tax refund, the earlier you file the earlier you will get your refund.

As COVID 19 is changing our financial landscape, we at ENT CPAs are proactively working with our clients to ensure that the best decisions are made case by case.

Stay Healthy, practice social distancing.

Rai B. Nandan FCPA, FCGA, TEP, CFP, ACCA (UK), CKA
Managing Partner
ENT CPAs