October 16, 2020
There have been some important updates to various COVID-19 support programs that we thought were important to bring to your attention. For further reference to these, or any other support programs, please click here for the Government of Canada’s Economic Response Plan site. There is a lot of information provided below, so we have organized it based on specific benefits, which are identified in bold text, so you can scroll to whichever section you may find relevant.
Canada Emergency Response Benefit (CERB) transition to the Canada Recovery Benefit (CRB)
· While the CRA is still continuing to accept and process applications for Period 7 for the CERB (Aug 30 – Sep 26), the CERB benefit eligibility period ends September 26, 2020,
o Any CERB payments that were paid for periods to anyone who is later found to be ineligible for those periods will need to be returned. If you or someone you know has mistakenly collected CERB payments for a period where eligibility may have changed, perhaps by earning employment or self-employment income in excess of $1,000 during that period, you can begin the repayment process. More information on this is available here.
· Following Period 7 of the CERB, there are changes to the Employment Insurance (EI) program effective September 27th, whereby individuals may be eligible for EI benefits if they:
o were employed for at least 120 insurable hours in the past 52 weeks
o received the CERB, the 52 week period to accumulate insured hours will be extended
o stopped working through no fault of their own
o did not quit their job voluntarily
o are ready, willing and capable of working each day
o are temporarily unable to work while caring for someone else or themselves.
· If an individual is eligible for EI benefits, they will receive a minimum taxable benefit at a rate of $500 per week, or $300 per week for extended parental benefits.
· For individuals who are not eligible for EI, the new Canada Recovery Benefit (CRB) is available for workers who have stopped working or had their income reduced by at least 50% due to COVID-19. This is a benefit of $500 per week (paid out in payments of $900 for each 2-week period a person applies for, with 10% taxes withheld).
o Note that there is a cap on net income that may result in the requirement to pay back CRB benefits. If you earn more than $38,000 in the calendar year (not including CRB payments), you will need to reimburse $0.50 of CRB benefits for every dollar of income you earned over $38,000, to a maximum of the total CRB benefits you received. More information on this is available here.
One final note about the CERB. These payments are taxable benefits, which means they will be taxed similar to employment income. At the same time, there were no tax withholdings deducted from the $2,000 CERB payments, which means that an individual receiving CERB payments may need to pay tax on the benefits received. Similarly, the 10% tax withholdings of the CRB may not be sufficient to cover the amount of tax that you may owe. The amount of tax a person needs to pay, if any, will depend on how much income that person earned in 2020, but we want to bring this to your attention, so you, or someone you know, can be prepared when we do your personal tax returns that you may need to pay taxes, or that you may not receive as large of a tax refund that you may normally expect. Please contact our office if you have further questions about this.
· This benefit provides $500 per week for up to a maximum of 2 weeks for workers who:
o Are unable to work for at least 50% of the week because they contracted COVID-19
o Are self-isolated for reasons related to COVID-19
o Have health conditions that a medical professional would consider to make them more susceptible to COVID-19.
Canada Recovery Caregiving Benefit (CRCB)
· This benefit provides $500 per week for up to 26 weeks per household for workers:
o Unable to work for at least 50% of the week because they need to care for a child under the age of 12 or family member due to COVID-19 related closures of schools, daycares or care facilities.
o Because a child or family member is sick or is required to quarantine or has a high risk of health implications due to COVID-19.
Canada Emergency Wage Subsidy (CEWS)
· In August we had sent out a summary to summarize proposed changes to the CEWS, which have since taken effect, for periods 5 through 9. A very brief summary is also available here.
· Employees who were unpaid for 14 or more days can now also be included in the calculation.
· More information on the expansion/changes of the CEWS can be found here.
Note: The CRA has started conducting preliminary reviews of CEWS applications. From our experience with these so far, some of the drivers that may trigger an application for review include:
o When multiple months of CEWS applications are submitted at once.
o Due to the CRA security breach earlier in the year, CEWS applicants that updated their mailing address or direct deposit info in the last 6 months are also more likely to have CEWS applications reviewed to confirm applications are correct and direct deposit payments are going to the correct bank accounts or cheques are mailed to the correct addresses.
We have also noticed that the window of time within which supporting documentation must be submitted to the CRA for a CEWS application review can be as small as 10 days. Therefore, if your business has been receiving CEWS benefits, it is recommended that you ensure your records are in order and readily on hand, in order to minimize a scramble that may result should you receive a review letter from the CRA.
A recent announcement made by the Government of Canada indicates the intention to extend the CEWS until June of 2021. More details are expected to come on this.
Canada Emergency Business Account (CEBA) Interest Free Loans
· These are the interest free loans of up to $40,000 for small businesses to cover operating costs during periods of possible revenue reductions, with up to $10,000 of the loan being forgivable if repaid by December 31, 2022.
· A recent announcement by the Government of Canada indicated the intention to expand this program, providing an interest free loan of up to $20,000, in addition to the original $40,000 CEBA loan. If paid by December 31, 2022, half of this additional financing would be forgivable.
· More details are to come on this expansion, but there is a note that a business will need to provide an attestation regarding the impact of COVID-19 on the business in order to access these additional funds.
· We have seen that the CEBA funds have been helpful for a number of businesses, and in total $195M has been disbursed by the government in CEBA loans at the time of this email. If your business has received funding through the CEBA program, please be aware of the impact that a liability of an additional $40,000 - $60,000 may have on your financial statements. Many financing agreements, such as lines of credit, come with lending covenants which often stipulate ratios pertaining to debt, such as debt to equity. Taking on an additional $40,000 - $60,000 may impact such ratios significantly, which may have a negative impact on your compliance with these lending covenants, creating a risk that the financing may be called by the lender. These covenants are often tested annually, if not more frequently, and so consider looking at this before your year end, to determine if you need to take any steps to address this in advance.
Loan Guarantee For Small and Medium Sized Businesses
· Export Development Canada is working with financial institutions to guarantee 80% of new operating credit and cash flow term loans of up to $6.25 million.
· The purpose of the financing is for operational expenses, and is available through June 2021.
· More information can be found here.
Canada Emergency Rents Subsidy (CERS)
· This recently announced subsidy is meant to provide rent and mortgage support to qualifying businesses until June 2021.
· The rent subsidy would be provided directly to tenants, and would be for organizations that have experienced a decrease in revenues, based on a sliding scale.
· Eligible organizations will be able to make retroactive claims for the period that began September 27th and ends on October 24th.
· An additional 25% rent subsidy will be provided for organizations that have had to temporarily shut down as a result of mandatory public health orders by a qualifying public health authority.
· More information is to come on this program.
As the effects of COVID-19 continue to impact individuals and businesses, we continue to see updates to existing support programs, and announcements of new programs being offered. While these support programs have been and continue to be helpful, as we discussed above there are various considerations that should be looked at closely when accessing these, such as possible repayment obligations, additional taxes owing, or implications on lending covenants. If you have any questions specific to your situation, or if you would like assistance in mapping out your business operations over the upcoming year, in light of COVID-19 and continued restrictions, please contact us.
The information contained in this communication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation.
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