Forgivable Portion of the CEBA To Be Included as Income When Received

In the wake of the COVID-19 pandemic, the Canadian federal government announced the Canada Emergency Business Account (CEBA) which provides interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced. A quarter of this loan (up to $10,000) may be eligible for forgiveness under certain conditions.

In October 2020, the federal government expanded the CEBA program with an additional interest-free loan of up to $20,000, in addition to the original CEBA loan of $40,000. Half of this additional financing, up to $10,000, would be forgivable if certain conditions are met.

The forgivable portion of the CEBA is to be included in income at the time the assistance is received pursuant to s. 12(1)(x)of the Income Tax Act (“ITA”) as opposed to when the requirements for the forgiveness are met after December 31, 2020.   There would be an offsetting deduction pursuant to s. 20(1)(hh) if the amount included under s. 12(1)(x) is subsequently repaid.

As CEBA funds are to be used to pay for non-deferrable operating expenses of the business including payroll, rent, utilities, insurance, property tax and regularly scheduled debt service, the recipient can elect to reduce the amount of outlay or expense under  s. 12(2.2) as opposed to reporting the amount as an income inclusion.

For more information, review s. 12(1)(x) of the ITA available on the CRA website.