COVID-19 Federal Support Update
This article has been updated as of March 30, 2020 based on Federal Government announcement.
Over the last few weeks, the Federal Government announced they would be providing an emergency response package for Canadians and Canadian businesses. The package is intended to help with business liquidity in the short term.
To support Canada’s economy and Canadian businesses, the Government has announced several measures including the following which we believe will be most relevant to our clients.
Deferrals offered by the CRA:
- Income tax amounts owed by individuals and businesses are deferred to August 31, 2020. The amounts eligible for deferral are those owing between March 18 to September 2020. This relief applies to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period. This will apply to income taxes only – being income tax installments and any income tax amounts due.
- For individuals (other than trusts), the return filing due date is deferred until June 1, 2020.
- For trusts having a taxation year ending on December 31, 2019, the return filing due date is deferred until May 1, 2020.
- For partnerships and NR4 information returns, the return filing due date is deferred until May 1, 2020.
- For charities with a Form T3010, the deadline for any information return due between March 18, 2020 to December 31, 2020 is now extended to December 31, 2020.
- While there does not technically appear to be a delay in corporate tax filing deadlines, since payments may be deferred until after August 31, 2020 without penalty, there should be effectively no penalty for late filing T2 income taxes during that period.
- GST/HST remittances are deferred to June 30, 2020. On June 30, 2020:
- Monthly filers must remit February, March and April amounts;
- Quarterly filers must remit January 1 to March 31 amounts; and
- Annual filers whose GST/HST returns or instalments are due in March, April or May 2020 must remit amounts for prior year.
- The Federal government has not explicitly provided an extension on the filing deadlines for GST/HST returns. However, there is no late-filing penalty when no amount is required to be remitted.
- Customs duties and GST payable on imports for March, April and May are deferred to June 30, 2020.
- Administrative income tax actions that are due after March 18, 2020 can be deferred until June 1, 2020. These include returns, elections, designations and information requests.
- Objections related to benefits and credits entitlements will continue to be processed. However, the deadline for filing an objection that was due March 18, 2020 or later is extended until June 30, 2020.
- The CRA has also suspended all audit activities, meaning no audits will be initiated or finalized and no requests for information will be issued.
- However, there is currently no deferral for payroll remittances which must still be remitted to the CRA (see comments below regarding the wage subsidy).
Availability of credit for Canadian businesses:
- An increase in the credit available to small, medium, and large Canadian businesses through the Business Credit Availability Program (BCAP), which will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide
more than $10 billion of additional support, largely targeted to small and medium-sized businesses.
To access the BCAP, business owners should contact BDC or EDC directly.
- The EDC will also be guaranteeing new operating credit and cash flow term loans that financial institutions extend to small and medium enterprises. The guarantee is limited to $6.25 million.
- The BDC will also be co-lending term loans with financial institutions for small and medium enterprises. These are intended to assist with operational cash flow. The BDC’s portion of the loan will be up to $5 million per loan.
- The Office of the Superintendent of Financial Institutions (OSFI) announced it is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately. This will allow Canada’s large banks to inject $300 billion of additional lending into the economy.
- The Bank of Canada has also cut its interest rate to 0.25%.
- Canada Emergency Business Account is a program offered by the Federal Government. It will be implemented through eligible financial institutions (with cooperation of EDC).
- This account provides for a loan up to $40,000, interest-free for the first year, to qualifying businesses and not-for-profits.
- If the borrower repays the balance on or before December 31, 2022, 25% of the loan will be forgiven (up to $10,000).
- Applications are done directly with each person’s respective financial institution.
- To qualify, the small business or not-for-profit must demonstrate that they have paid between $50,000 to $1 million in total payroll in 2019.
Canada Wage Subsidy
To support businesses that are facing revenue losses and to help prevent layoffs, the government will be providing eligible employers a temporary wage subsidy (so far) for a period of three months:
- The government announced that the subsidy will be equal to 75% of remuneration paid during that period (up to $58,700 per employee, or up to $847 per week per employee). Based on the Prime Minister’s address on March 30, 2020, any business or not-for-profit that has experienced a revenue reduction of at least 30% will be eligible for the subsidy. The number of employees is not relevant. The Prime Minister’s announcement suggested that businesses may be able to pay their employees only the 75% subsidy if they cannot afford to pay the final 25%, but will be expected to pay the final 25% if they are able.
We will update this article as more details are released.
Previously, the subsidy was equal to 10%, up to a maximum subsidy of $1,375 per employee and $25,000 per eligible employers.
- Based on the previous 10% subsidy: Eligible employers were:
- Non-profit organizations;
- Registered charities;
- Canadian-controlled private corporations with less than $15 million of taxable capital employed in Canada in the preceding tax year (calculated on an associated group basis); and
- Partnerships, if the members of the partnership are comprised of individuals, registered charities, partnerships, or Canadian-controlled private corporations as described above.
Although the Prime Minister had stated that the subsidy will apply to not-for-profits, charities and businesses (small or large), it is currently unclear if partnerships are still eligible and whether there will still be a $15 million taxable capital employed in Canada threshold will still apply. However, the Prime Minister’s comment that it applies to large employers would appear to suggest that there may not be a limit related to taxable capital employed in Canada. Further, if the aim is that it will apply to basically all employers, partnerships should also be eligible. Again, we will provide more information once it is available.
- When the subsidy was for 10% and only available to small businesses, businesses were to be able to benefit by reducing their remittances of income tax withheld on their employees’ remuneration. Employers could not reduce remittances of CPP or EI.
It is unclear how the 75% wage subsidy will be claimed. Given payroll remittances are likely in many cases less than the available subsidy, it would make sense that the government will make payments of the payroll subsidy to employers.
The mechanism of how this may happen is unclear, but the government did recommend Canadians sign up for My Account or My Business Account and Electronic payments. This suggest that persons will be able to apply for many of these COVID-19 benefits, including the Canada Wage Subsidy, online and will be able to receive the benefits as direct deposits. However, it can take time to get set up – the CRA needs to mail a code which delays things. We therefore recommend setting up your business with My Business Account and for direct deposits with the CRA as soon as possible if you have not already done so.
- The Prime Minister also stated that the goal was to get funds out as quickly as possible – relying on businesses self-assessing whether they qualify. However, he indicated there will be harsh penalties for businesses that try to game the system and take advantage of the subsidy when they do not qualify or use it for anything other than paying employees. At minimum, amounts claimed when an employer did not qualify will need to be repaid. However, likely there will be penalties applied in circumstances where the CRA believes there was any abuse, as well.
Therefore, it is critically important Employers maintain records showing the remuneration paid during the eligible period, the income tax that was deducted from this remuneration, and the number of employees for which the subsidy applied. This will likely be crucial to protecting yourself from future audit grief.
The CRA will provide further details on how to report this subsidy and we will update this article once that information is available.
- The latest information from the CRA can be found here and the Bill can be found here. (Please note that the CRA site has not yet been updated to show the 75% subsidy).
Access to non-EI benefits and supports:
The Federal government will offer the Canada Emergency Response Benefit (CERB) to those who have lost income due to the COVID-19 pandemic and are not currently receiving EI. Applications for the CERB will open in April.
- Albertans are able to immediately apply for the Emergency Isolation Support. This Emergency Isolation Support is temporary and intended to bridge the gap in coverage before the Federal CERB becomes available in April.
- More information on the CERB and Alberta’s Emergency Isolation Support can be found here.
- More information on support for Canadians and Businesses can be found here.
Loan reliefs offered by financial institutions:
The country’s six largest financial institutions announced plans yesterday to provide financial relief to Canadians impacted by the economic consequences of COVID-19, stating:
“Effective immediately, Bank of Montreal, CIBC, National Bank of Canada, RBC Royal Bank, Scotiabank and TD Bank have made a commitment to work with personal and small business banking customers on a case-by-case basis to provide flexible solutions to help them manage through challenges such as pay disruption due to COVID-19; childcare disruption due to school closures; or those facing illness from COVID-19.”
- The Department of Finance Canada indicated Canada’s large banks have confirmed that this support will include up to a six-month payment deferral for mortgages, and the opportunity for relief on other credit products.
- Information provided by the banks has been changing rapidly as the banks decide how to proceed. Information has slowly made its way down to front line bank employees, so their message to clients has not been consistent over the last several days. This means if you were told last week you do not qualify for a deferral, that may no longer be the case today.
- However, the latest news suggests that while payment deferrals will be available, the banks will continue to charge interest which will compound if no payments are made. As a result, likely not only will individuals and businesses who take advantage of this option still owe all the deferred payments, they will likely owe more.
- If you are in a cash crunch, you may still need to take advantage of these options, but you likely want to do it as little as possible.
- You will need to contact the individual banks, for example:
National Bank of Canada
- If you have any questions in the interim regarding these measures, please reach out to MaryAnne Loney, Mohamed Denny, Michelle Fong, Pat Haughian, or Dani Fialkov.