19 Aug What’s taxable? A breakdown of COVID-19 support for business
by Shane Schepens
Originally published by CPABC’s Industry Update.
With small businesses and global chains alike being disrupted by COVID-19, the provincial and federal government have announced a host of supports for Canadian businesses. Businesses must be aware that some of the benefits and subsidies available to help them through ongoing challenges are taxable to employers, and plan their finances accordingly.
Canadian 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 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, i.e., it will not have to be repaid.
While the CEBA loan proceeds are non-taxable to employers, any amounts that have been forgiven will be taxable.
Canada Emergency Commercial Rent Assistance (CECRA)
The CECRA provides 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 reduces the rent from April to June 2020. Further, the government has extended this program for July and August for those tenants that were previously approved for the April to June period.
Funds, in the form of an unsecured, interest-free, forgivable loan, are 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 be taxable to the landlords. The tenant would only be entitled to a deduction for the amount of the actual rent paid.
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 small- and medium-sized businesses 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.
Reminder: Tax returns are due September 1, 2020
In light of the difficult circumstances facing businesses, the filing deadline for 2019 or 2020 income tax returns for corporations has been extended to September 1, 2020. The payment due date is September 30, 2020.