COVID-19 Tax Update Federal and Ontario Governments Economic Response Measures
(Released April 3, 2020)
Advice for Your Business During the COVID-19 Pandemic based on Federal and Provincial Economic Response Measures
We continue to monitor the Federal and Ontario government announcements on an hourly basis. As both governments work through the COVID-19 pandemic, we understand the need for communication to help alleviate any anxiety you may have.
At this stage, the Federal government is often making announcements before logistics being in a place with the chartered banks, or even without legislation drafted. Unfortunately, we are seeing these issues mainly with the largest and potentially most impactful economic measures. This is making it difficult for our clients in all sectors, as we seek clarity on programs and await documents to start the process for applying for funds.
Currently, our recommendation is to assess your situation considering all relevant business/commercial factors, including cash flow projections, access to credit, retention of key employees/members, goodwill with suppliers, donors, customers/users of services, to determine whether it makes sense to remain open, even partially, and generate sales/revenue.
After reviewing your position, we recommend considering the following to take advantage of the economic measures on which clarity exists.
1. Start Claiming the 10% Temporary Wage Subsidy
If you remain open, whether fully or partially, start claiming the 10% Temporary Wage Subsidy (TWS). As a reminder, the 10% TWS is accessed by reducing an employee’s income tax remittance to the CRA, to a maximum cumulative amount of $1,375/employee and $25,000/employer. The subsidy will be taxable to the employer[i] and is available to:
- corporations eligible for the Federal small business deduction (SBD);
- Charities and NPOs; and
- sole-proprietorships and certain partnerships.
We have spoken with clients who have already been able to claim the temporary wage subsidy retroactive to their most recent pay period through their payroll service providers (PSP). If your organization does not use a PSP, please contact our professional tax accountants and we can guide you through the process.
2. Where Some Employees Are Laid Off or Furloughed
If possible, lay off employees that are EI-eligible as wait-times and eligibility requirements have been relaxed. Keep in mind that for furloughed employees who are eligible for the $2,000/month Canada Emergency Response Benefit (CERB), you will be unable[ii] to claim the 75% Canada Emergency Wage Subsidy (CEWS) for recalled employees for a given week if it falls within a month of CERB eligibility.
3. Canada Emergency Business Account Interest-Free Loans
For businesses and NPOs with 2019 payroll between $50,000 and $1,000,000, the Federal government is providing funding to financial institutions through the Canada Emergency Business Account (CEBA). CEBA loans:
- can be made for amounts up to $40,000;
- are interest-free; and
- provide 25% loan forgiveness, up to $10,000, if repaid by December 31, 2022.
For our eligible clients, we encourage you to contact your financial institution to find out when they will be making CEBA loans available. Some institutions have indicated they expect CEBA loans to be made available starting the week of April 6, 2020.
Although the 75% CEWS remains, potentially, the most significant measure for many employers, qualification criteria, application, and timing of the flow of funds continue to be developed. Therefore, in our mind, you need to make business decisions based on information available today.
We’ll keep you advised as soon as we learn of any new information.
[i] Tax-exempt entities would include the assistance received in income but would not be liable to pay tax on the amount.
[ii] Based on information released by the federal government to April 3, 2020.