The challenges brought on by COVID-19 has made business survival a key concern, especially for small and medium-sized enterprises (SMEs). As our economy continues to mend, SME owners are encouraged to stay aware of what government resources are available to them for assistance, and how these resources are taxed.
Canada Emergency Wage Subsidy (CEWS)
The CEWS was designed to help keep employees on the payroll and encourage employers to re-hire workers who were previously laid off. Through the CEWS, businesses affected by COVID-19 may be eligible for an employee wage subsidy of up to 75% from March 15, 2020 to November 21, 2020. The federal government recently announced a further extension until June 2021, but no details are available at this time.
The CEWS is taxable to employers as it offsets the wage expenses paid to the employees. As per the Government of Canada’s website, “the amount of the CEWS received by an employer for a qualifying period will be considered government assistance and be included in the employer's income for the taxation year that includes that qualifying period.” However, the employer will be able to deduct the actual remuneration paid to the employees.
Employers must include the amount of the CEWS received on their Annual Return of Income (e.g. Corporation Income Tax Return, Partnership Return) when calculating their taxable income.
Employers are also expected to report the amount of the CEWS that was used to pay each of their employees’ salaries by using a special code in the “other information” area at the bottom of the employees’ T4 slips. More information on the reporting requirements will be released before the end of 2020.
Canada Emergency Business Account (CEBA)
The CEBA provides interest-free loans of up to $40,000 to certain small businesses and not-for-profits, to help cover their operating costs during a time when their revenues have been temporarily reduced. If the balance of the loan is repaid on or before December 31, 2022, 25% (up to $10,000) will be forgiven. Recently, the federal government has announced an extension of the CEBA programs so that businesses can apply for an additional $20,000, with up to 50% or $10,000 of this additional amount eligible for forgiveness.
While the CEBA loan proceeds are non-taxable to employers, any forgiven amounts will be taxable in the year received (i.e. 2020). The taxpayer can take a deduction in future years for any amounts that are not ultimately forgiven.
Regional Relief and Recovery Fund (RRRF)
Available to businesses in Western Canada through the Western Economic Diversification Canada, the RRRF is designed for businesses that are not eligible for the CEBA.
The RRRF offers support to SMEs and is an interest-free, conditionally repayable contribution of up to $40,000. Different forms of the RRRF are available to rural or women-led businesses, and businesses can also request funding over $40,000.
If recipients repay 75% (up to $30,000) of their RRRF contribution, on or before December 31, 2022, they will be forgiven 25% (up to $10,000) of the total contribution. The full balance must be repaid by December 31, 2025. While the RRRF loan proceeds are non-taxable, any amounts that have been forgiven will be taxable.
Canada Emergency Commercial Rent Assistance (CECRA)
Although this support has now concluded, business owners who received it should be aware of how it is taxed. The CECRA provided rent relief for certain small businesses, not-for-profits, and charities experiencing financial hardship caused by COVID-19 and is designed to provide a 75% reduction in rent. This program reduced the rent from April to August 2020.
Funds, in the form of an unsecured, interest-free, forgivable loan, were paid to the property owner. The loans will be forgiven on December 31, 2020, if the property owner fulfills all applicable program terms and conditions.
Any proceeds received by the landlords for the CECRA would have been taxable to the landlords. The tenant would only be entitled to a deduction for the amount of the actual rent paid.
Canada Emergency Rent Subsidy (CERS)
The federal government has announced a rent subsidy to replace the CECRA, which will be paid directly to qualifying tenants for the period from October to December 2020.
Any subsidy received by the tenants will be included in their taxable income as they will get a deduction for the actual rent paid to their landlords.
Talk to a financial advisor or a Chartered Professional Accountant by searching the CPABC Member & Firm Directories for further guidance.
Shane Schepens, CPA, CA is a Partner at Clearline CPA. Shane’s focus is on Canadian tax planning, such as reorganizations, estate, and succession planning for medium and small private companies. Shane is a member of the CPABC Taxation Forum. Visit our personal finance section for more tax-related tips.
