CANADA EMERGENCY WAGE SUBSIDY (CEWS)
The government has announced that the program will continue until June 2021, however the details beyond December 19, 2020 have not been released.
On October 14, 2020 has recommended changes to the subsidy for Period 8 (September 27 to October 24, 2020) onward. Instead of using the current three-month revenue decline test for the top-up subsidy, both the base and top-up would be determined by the change in monthly revenue, year-over-year, for either the current or previous calendar month. This would allow businesses that have a sudden drop in revenues to maximize the subsidy in that specific month when impacted the most. You can currently apply for Period 8, but we would recommend waiting until the online spreadsheets have been updated with CRA to avoid having to resubmit based on the proposed changes.
T4 REPORTING REQUIREMENTS
The CEWS will have to be reported on employees T4’s on a per period basis. CRA has introduced several new boxes for T4 reporting. It is important to know that the income report in these boxes will be the gross employment income, not the subsidy received.
- Code 57: Employment income – March 15 to May 9
- Code 58: Employment income – May 10 to July 4
- Code 59: Employment income – July 5 to August 29
- Code 60: Employment income – August 30 to September 26
Each period, which aligns with periods relating to COVID-19 benefit eligibility, pertains to the day the employee was paid and not necessarily the period of work the payment covered. For example, a payment made May 14, for the pay period of April 25 to May 8, would be reported under Code 58.
With program extensions there may be additional codes introduced before year end. This may require significant extra work in completing T4’s for 2020.
10% TEMPORARY WAGE SUBSIDY (TWS) FOR EMPLOYERS
The 10% wage subsidy program is related to wages and salaries earned between March 18, 2020 and June 19, 2020. If you have not yet claimed this subsidy, you can still wait until T4 filing time to claim the refund at that time.
Form PD27, 10% Temporary Wage Subsidy Self-Identification Form for Employers can be found online or submitted through my business account to report the subsidy claimed to CRA. This form will allow CRA to reconcile your source deductions remitted on your final T4 Summary. The form should be filed by those who claimed the TWS, intend to claim the TWS or have claimed the CEWS. If you elected at zero regarding the CEWS you must still complete the form.
CANADA EMERGENCY BUSINESS ACCOUNT (CEBA)
On October 26, 2020 eligible businesses that currently operate through a personal bank account will be able to apply for CEBA, previously you had to have a separate business bank account. This could provide significant relief for sole proprietors.
It was also announced an expanded CEBA from $40,000 to $60,000, which will be available to all eligible previous and new CEBA applicants. Half of the additional $20,000 financing would be forgivable if repaid by December 31, 2022, providing potential $20,000 in forgiveness on the total $60,000 loan. Our expectation is the $20,000 will require some combination of revenue drops or providing evidence similar to the non-deferred expenses approach for the $40,000.
The application deadline has been extended to December 31, 2020.
CANADA EMERGENCY RENT SUBSIDY
The new rent subsidy would be provided directly to tenants until June 2021 for qualifying organizations impacted by COVID-19. The subsidy would be based on a sliding scale of revenue decreases to a maximum of 65 percent of eligible expenses until December 19, 2020 and organizations would be able to make claims retroactively for the period that began September 27 and ends October 24, 2020. The periods would match up with the CEWS.
A top-up Canada Emergency Rent Subsidy of 25 percent for organization temporarily shut down by a mandatory public health order issued by a qualifying public health authority, in addition to the 65 percent subsidy.
It is important to note this has not been passed in Parliament yet, and we are waiting on more details around non-arm’s length arrangements (holding company renting to operating company) and for the definition of “mandatory shutdown”.
THE TOURISM ACCOMMODATIONS REAL PROPERTY TAX REBATE PROGRAM
The Province of Nova Scotia has implemented this program which is a 25% rebate to help hotels, motels, and inns with their 2020-21 commercial property tax. The operator would need to have incurred a year-over-year revenue loss from room accommodation revenue of at least 30% for the period April 1, 2020 to October 31, 2020.
- must meet the definition of a roofed accommodation in the Tourist Accommodations Registration Act
- have five or more rooms available for rent to the public
- be assessed as a commercial property
- not be in arrears of any real property taxes, up to and including 2020-2021 real property taxes
Applications for this rebate open on November 16, 2020.
TAXATION AND TIMING - CEWS
For income tax purposes, CEWS is considered government assistance included in income when received. However, the legislation deems CEWS to be received at the end of the CEWS period to which it relates. These period end dates are set out below.
- Period 1: April 11, 2020;
- Period 2: May 9, 2020;
- Period 3: June 6, 2020;
- Period 4: July 4, 2020;
- Period 5: August 1, 2020;
- Period 6: August 29, 2020;
- Period 7: September 26, 2020;
- Period 8: October 24, 2020;
- Period 9: November 21, 2020; and
- Period 10: December 19, 2020.
As these dates will not match the typical business selection of a month-end date, this may create differences between accounting and taxable income for corporations and other entities with years ending between April and November 2020.
Claims can be filed as late as January 31, 2021 under the changes included in Bill C-20. Even if these claims are filed subsequent to year-end, the benefits are still deemed received, and taxable, at the end of each CEWS period.
INCOME TAX TREATMENT – CEBA
The CEBA program provides a forgivable loan to program participants. Absent special legislation, it appears the forgivable portion loans under CEBA being included in income when the loan is advanced. In the event the terms of the forgiveness are not met, a deduction is available when the loan is repaid.
An election can be filed to exclude the payment from income and instead offset a related expense (Subsection 12(2.2)) or the cost of a related asset acquired (Subsection 13(7.4)). Where the non-deferrable expenses paid with CEBA funds are not incurred until the following fiscal year, such an election may permit the income to be deferred to match the expense.