Canada Emergency Business Account (CEBA) Update:
Deadline extended: The March 31st, 2021 deadline for applying for the CEBA loan was extended to June 30 2021 per an announcement from the Federal government on Monday, March 22, 2021. Almost $45 billion CEBA loans have been approved to date of the $73 billion program.
Canada Emergency Business Account (CEBA) (Source: Government of Canada)
Other Federal Financial Support, Loans and Access To Credit:
Managing your business during COVID-19: Financial support, loans and access to credit (Source: Government of Canada)
B.C. Government: The deadline was extended from March 31, 2021 to August 31, 2021 for applying for the Small and Medium Sized Business Recovery Grant program.
Expanded CEBA Program Summary
- Why apply? An eligible business can receive an interest-free loan of up to $60,000 (or an additional $20,000 on top of $40,000 already received) with 1/3 of that able to be forgiven (up to $20,000) if the loan is fully repaid before December 31, 2022. No principal repayments are required before December 31, 2022. Balances on December 31, 2022 convert to a 5% per annum 3-year term loan.
- Who is eligible? (whether the $60,000 CEBA loan or $20,000 CEBA expansion loan), an applicant must be an active operating business that is a sole proprietorship, partnership or a Canadian-controlled private corporation (“CCPC”) that was in operation in Canada on March 1, 2020.
An applicant must fall under 1 of 2 streams – whether applying for the 1st time or have already received the $40,000 CEBA loan):
- “Payroll Stream” (more than $20,000 2019 T4 payroll Box 14 but less than $1.5 million):
- “Non-Deferrable Expenses” stream (3 step process):
- Need at least $40,000 2020 committed expenses that are “non-deferrable expenses” (see: https://ceba-cuec.ca/ for a list) and is impacted by other government funding such as CEWS, CERS, etc..
- Supporting documentation must be uploaded
- What has changed with the expanded CEBA?
- The applicant has to attest they were negatively impacted by COVID-19 (may be different attestation for different financial institutions).
- The applicant must agree to use the loan to fund non-deferrable operating expenses
- Applicant must continue to operate (or resume operations)
- Public companies are not eligible
CEBA Pre-Screen Tool (Source: Government of Canada)
- How to apply? Through the applicant’s primary financial institution
- $60,000 CEBA loan if applying for the 1st time; or
- the $20,000 extension if received the $40,000 CEBA loan
- 3 step process for the Non-deferral Expenses stream so plan ahead.
- Use of the funds? The funds are intended to be used for non-deferral expenses (see list above).
- Tax treatment of the Forgiven Portion of the Loan (up to $20,000)
- The forgivable portion of the loan ($20,000 if the business received $60,000; $10,000 if the business received $40,000) – is included in the income of the year in which the loan is received.
- However, the recipient may be able to instead elect (free form) to reduce the amount of outlay or expense under subsection 12(2.2) of the Income Tax Act.
The election must be made with the tax return for the year in which the outlay or expense is made or incurred. For example, the CRA states in document 2020-0862931C6 that a corporation receiving the CEBA loan in 2020 could avoid the income inclusion by filing the election with its income tax return for its 2020 taxation year to reduce the amount of allowable non-deferrable operation expenses incurred in 2020. Similarly, a corporation could avoid the income inclusion in its 2020 taxation year by filing the election with its income tax return for its 2021 taxation year to reduce the amount of allowable non-deferrable operation expenses incurred in 2021.
Implications of CEBA Loan Forgiveness (Source: Wolters Kluwer)
- If the forgivable portion is repaid, a deduction can be claimed at the time of repayment under paragraph 20(1)(hh) of the Income Tax Act
How We Can Help
- Questions? CEBA help-line 1-888-324-4201 or if you have further questions or contact your DMCL advisor;
- We suggest you review the CEBA loan terms with your business’ or NPO’s primary financial institution for specific conditions and if impacted by restructurings/reorganizations;