CEWS – Wage Subsidy
The first hard deadline for CEWS is just around the corner… January 31, 2021.
1. Multiple periods covered
CEWS applications are due by:
- the later of 180 days after the end of the period, and
- January 31, 2021.
This means that the final deadline for periods 1-5 (ending August 1, 2020) is January 31, 2021.
2. Restriction on past elections
January 31, 2021 is also the final deadline to amend or revoke elections related to the revenue decline computation for those periods.
3. Restriction on future elections
As some elections affect multiple periods (such as the cash basis revenue decline method selection, and the use of January and February’s average monthly revenue as a prior period reference), the choice used in period 5 will lock in the remaining periods after this deadline passes.
4. Effect on CERS
The base CERS subsidy is largely based on the revenue decline computation of the CEWS program. Therefore, if an election is made for CEWS, and it binds all periods, then future CERS claims will be impacted.
Tip: Review all potential claim applications, as well as adjustments to prior claims, before January 31, 2021.
CEBA – Forgivable Loan
This loan program is facilitated by Canadian lending institutions under which an interest-free loan of up to $40,000 is made to a qualifying small business or not-for-profit organizations. Under the terms of the loan, 25% of the loan (up to $10,000) will be forgiven if the balance of the loan is repaid on or before December 31, 2022.
If you can refinance or repay the loan there is $10,000 in income to the small business, but the 25% amount that might be forgiven if the loan is repaid by December 31, 2022 is taxable in the year end that includes December 31, 2020. The Income Tax Act will tax 25% of the amount advanced under this program. The corporate tax rate will determine how much tax you will be paying on the amount potentially forgiven in Calendar year 2020.
If by December 31, 2022 the loan is not repaid you can then deduct any amount previously included in your income when it is repaid. If this is repaid over the following five years (from 2023 to 2028), a deduction will be available when it is paid.
CECRA – Rent Relief
Canada Emergency Commercial Rent Assistance (CECRA) is a loan plan administered by the Canada Housing and Mortgage Corporation (CMHC).
Under this program the loans will be forgiven if the qualifying property owner agrees to reduce their small business tenants’ rent by at least 75 per cent under a rent reduction agreement, and will include a term not to evict the tenant while the agreement is in place. The small business tenant would cover the remainder, up to 25 per cent of the rent.
As to the portion of the CECRA loan that can be forgiven, it will be considered taxable when the loan is received from CMHC. If the loan is not forgiven, there will be an income deduction when the portion of the loan that was included in income is repaid.
Temporary Relief for Employee Automobile Benefits for the 2020 and 2021 Taxation Years due to COVID-19
On December 21, 2020, the Department of Finance Canada released a backgrounder and draft legislation to provide temporary relief in respect of employee automobile benefits for the 2020 and 2021 taxation years due to the impact of COVID-19.
Key Takeaways:
- Reduced Standby Charges: Employees can use their 2019 automobile usage to determine whether they are eligible for the reduced standby charge for 2020 and 2021.
- Operating Expense Benefit: Employees can also use their 2019 automobile usage to determine whether they are eligible for the optional operating expense benefit calculation for 2020 and 2021. Employees who are eligible for the optional calculation will have it applied automatically, and don’t have to notify their employer.
- These changes are effective January 1, 2020.
Current Rules:
There are taxable benefits when an employee uses an employer-provided automobile for personal use. Automobile benefits are captured by the standby charge and operating expense benefit.
The standby charge reflects an employee’s taxable benefit of having access to an employer provided automobile that may be used for personal use. The regular standby charge is set at 2% per month of the original cost of the automobile to the employer, or 2/3 of the monthly lease payments for the year. However, a reduction to the standby charge is available when the automobile is driven primarily for business purposes (i.e. more than 50%). Specifically, the regular standby charge is adjusted by a factor equal to the annual personal kilometers divided by the product obtained by multiplying 1,667 kilometers by the number of months the automobile is available to the employee.
The operating expense benefit is the employee’s taxable benefit arising from their employer paying costs relating to the personal portion of automobile operating expenses, such as insurance, maintenance, and fuel. The default benefit is $0.28 per personal use kilometer for 2020, and $0.27 for 2021. However, where certain conditions are met, the employee can elect for the operating expense benefit to be equal to 50% of the standby charge by notifying their employer.
Proposed Changes and Legislation:
Business lockdowns, reduced business activity, and other changes to our daily and business lives throughout the pandemic, may result in an employee’s business or personal mileage being reduced compared to a normal year. If employees have used the automobile substantially less for business purposes during the pandemic, they may no longer qualify for the reduced standby charge for tax purposes, even though their personal driving use might be similar or less than last year.
To address this issue, the government will allow employees to use their 2019 automobile usage to determine whether they are eligible for the reduced standby charge in 2020 and 2021. Please note only employees with an automobile provided by the same employer as in 2019 would be eligible for this option.
For example, if an employee faced the following situation:
| 2019 | 2020 | |
| KM for Business purposes | 11,000 (55%) | 8,000 (44%) |
| KM for Personal purposes | 9,000 (45%) | 10,000 (55%) |
| Total KM | 20,000 | 18,000 |
The employee would be able to access the reduced standby charge for 2020 based on their 2019 usage as business use was greater than 50% in 2019.
However, the employee’s reduced standby charge for 2020 would still be calculated using the employee’s actual personal kilometers driven in 2020.
Similarly, employees will be able to use their 2019 automobile usage to determine whether they are eligible for the optional operating expense benefit calculation.
For 2020 and 2021, employees eligible for the optional calculation of the operating expense benefit will be entitled to the new treatment without having to notify their employer. Instead, an employee’s operating expense benefit would be the lesser of the amount determined using the per-kilometer rate, or using the optional calculation.
These measures would be effective for the 2020 and 2021 taxation years.