COVID-19 – Canadian Tax and Business News, release #28
Our COVID-19 Canadian Tax and Business News updates are our way of informing our clients, friends and business associates with recent information that may help businesses and individuals while coping with the outcomes from the COVID-19 pandemic.
Our goal is to monitor the news and release relevant information as it becomes available.
The summary below is based on our understanding and interpretation of the announcements made by the government. The information below is in summary form and subject to change until the proposals are passed as legislation. Contact one of our professionals to discuss these matters in the context of your situation before acting upon such information.
CEBA Expansion Details
On December 4, 2020, many of the major financial institutions started accepting applications for the additional $20,000 CEBA loan. This announcement was discussed in our previous publication CEBA $20,000 Loan Expansion Applications. The CEBA Webpage and the FAQ section has also been updated to provide some clarity on the implications of applying for the CEBA expansion.
Terms of Debt Forgiveness
For purposes of determining the debt forgiveness, the total CEBA amounts borrowed are considered as one loan even though the banks may treat the $40,000 initial loan and $20,000 expansion loan as two separate loans. As a result, the terms of the debt forgiveness will vary depending on the amount of the total CEBA loan.
For example, businesses that borrow $40,000 or less are eligible for debt forgiveness of 25% up to a maximum of $10,000 provided the outstanding amount is repaid by December 31, 2022.
Businesses that repaid their original $40,000 loan and claimed $10,000 of forgiveness who subsequently apply for the $20,000 expansion are eligible for debt forgiveness of 50% up to a maximum of $10,000 if the outstanding amount is repaid by December 31, 2022.
For businesses that received the initial $40,000 loan and subsequently applied for the $20,000 CEBA expansion, the original terms of the debt forgiveness discussed above do not apply. In this case, debt forgiveness is not available unless $40,000 is repaid. The loan forgiveness is calculated as follows:
- 25% on the first $40,000; plus
- 50% on amounts above $40,000 and up to $60,000.
The CEBA Webpage provides the following examples:
Example 4:
Maximum Amount Borrowed: $60,000
Amount Repaid By December 31, 2022: $40,000
Available Forgiveness: $20,000 ($40,000 x 25% + $20,000 x 50%)
Example 5:
Maximum Amount Borrowed: $50,000
Amount Repaid By December 31, 2022: $35,000
Available Forgiveness: $15,000 ($40,000 x 25% + $10,000 x 50%)
Example 6:
Maximum Amount Borrowed: $60,000
Amount Repaid By December 31, 2022: $35,000
Available Forgiveness: $0
As you will note in example 6, no debt forgiveness is available even though the business repaid at least $30,000 which would have provided them with debt forgiveness of $10,000 under the original $40,000 CEBA loan arrangement.
Given the variation of the terms of the debt forgiveness, businesses must assess their ability to repay the required amount in order to maximize on the debt forgiveness. In most cases, this will be $40,000 if the maximum $60,000 is obtained from CEBA. This should be taken into consideration before applying for the expansion amount.
Terms of CEBA Loan
As outlined in our previous publication CEBA $20,000 Loan Expansion Applications, it was noted that eligible businesses must certify and attest that they are eligible for the expansion based on specific criteria being met. Specifically, businesses must attest that the loan will only be used to pay for Eligible Non-Deferrable Expenses which is now a defined term in many CEBA loan agreements. This attestation and certification is more restrictive than the previous CEBA loan application. As such, businesses should review their use of the CEBA funds as a whole to determine if they qualify under these additional restrictions before they apply for the expansion loan. If applying for the expansion, these additional restrictions will apply to the entire CEBA loan amount and not just the $20,000 expansion amount. This is imperative because eligibility for debt forgiveness is dependant on whether the use of the funds is met.
Resources:
As we all try to stay safe, we need to remind ourselves business will get back to normal but in the meantime let’s all do our part to get to normal as soon as we can. If you have any questions or require further information, don’t hesitate to reach out to us.
