The Canada Emergency Business Account loan is a rarity in government programs.
It has quickly adapted to the continued and sometimes increasing stresses placed on Canada’s small business sector by the ongoing COVID pandemic.
CEBA was originally launched on April 9, 2020, and by Dec. 1, 2020, almost 800,000 loans had been approved totalling $31 billion. It provided up to $40,000 in funds to successful applicants at zero interest, with a $10,000 portion forgiven if the loan was paid off by Dec. 31, 2022. Amounts that remain outstanding after that date would carry a five percent interest rate.
In December 2020, the government announced that it was providing an expansion to the program of an additional $20,000, one-half of which could be forgiven. That means up to a third of the $60,000 in loans could be forgiven.
Applications for the $60,000 loan must be received before March 31, 2021. If you have already applied for the $40,000 loan, you may apply, once again, for the $20,000 expansion, also before the above deadline.
CEBA is available by application to more than 220 financial institutions across the country including all major banks and many credit unions. You cannot make an application at more than one financial institution.
A condition of the original plan was that the business must have an active business chequing or operating account. This has been changed allowing you to open such an account while making your application.
Other conditions include possession of an active Canada Revenue Agency business number and you must intend to continue to operate the business or to resume its operation.
You have a choice of applying under one of two measurements. One is employment income disbursed in the 2019 calendar year of between $20,000 to $1.5 million. Previously, payment of salary through dividends wasn’t allowed but is now permitted.
However, if you can’t meet that threshold, you can demonstrate non-deferrable expenses between $40,000 and $1.5 million incurred before Dec. 31, 2020. These could include demonstrable expenses for rent, property taxes and utilities among other costs. Dividends paid are not considered a eligible non-deferrable expense but they are an acceptable means of remuneration under the payroll method of application. You must also have filed a tax return for the tax-year ending 2019 or if that has not yet filed, your 2018 return is acceptable.
The program is open to active operating businesses classified as a sole proprietorship, partnership or a Canadian-controlled private corporation that was active on March 1, 2020.
As for the forgivable part of the loan, it is considered as income by CRA when the loan was received. This requires amendment to any filing of your corporate fiscal year ending May 31, 2020. There is an alternative method of acknowledging this income without filing an amended return. You can reduce the outlay of expenses related to the loan, effectively offsetting some or all of the income associated with the forgiven amount. This can be acknowledged by a signed letter to the CRA by the due date for the corporate tax return associated with the period in which the expenditures were made.
Grant Diamond is a tax analyst in Saskatoon, SK., with FBC, a company that specializes in farm tax. Contact: firstname.lastname@example.org or 800-265-1002.