COVID-19 – Canadian Tax and Business News, release #22
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.
Canada Emergency Rent Support (CERS)
On October 9, 2020, Finance announced a new rent subsidy program to replace the Canada Emergency Commercial Rent Assistance (CECRA) previously in the place. This new program will provide rent subsidies directly to tenants but there is also support available for property owners. The program is retroactive to September 27, 2020 and it will be administered by the Canada Revenue Agency (CRA). On November 2, 2020, draft legislation was introduced providing details on eligibility and subsidy rates. The key points are summarized below.
To qualify, the rent must be paid by an eligible tenant pursuant to a lease agreement they entered into before October 9, 2020 or on a renewal of a lease agreement under similar terms. The CERS provides that up to $75,000 per period in rent can be subsidized multiplied by the rent subsidy rate percentage for the period. The percentage is based on the revenue decline for the qualifying period. The revenue declines are determined in the same manner as the Canada Emergency Wage Subsidy program. Therefore, eligible applicants can determine the revenue decline based on comparing the revenue from the same month in 2019 or elect to use the average of January and February 2020. The rent subsidy percentages summarized below apply to periods from September 27, 2020 to December 19, 2020.
|Revenue decline for the period||Subsidy Percentage|
|Revenue decline 70% or greater||65%|
|Revenue decline from 50% to 69%||40% plus 1.25 x the revenue decline in excess of 50%|
|Revenue decline from 0% to 49%||0.8 x the revenue decline for the period|
There is also an additional 25% top up subsidy for businesses forced to close due to a government enforced public health striction in response to the COVID-19 pandemic.
For landlords and building owners of commercial properties, mortgage interest, property taxes and insurance are also eligible for the subsidy.
Applications must be filed with the CRA by the later of January 31, 2021 or 180 days after the end of the qualifying period. No details have been provided at this time on how and when businesses can apply. We will provide details once announced by the CRA.
2020 T4 Reporting Requirements and Form PD27
During the summer of 2020, the CRA introduced additional T4 reporting requirements for the 2020 tax year that are applicable to all employers regardless if they applied for government assistance programs during the pandemic. Please refer to our previous publication in our COVID-19 series, T4 Reporting Changes.
The CRA also requires all employers who received CEWS but did not want to receive the 10% Temporary Wage Subsidy (TWS). By default, employers are deemed to have received the 10% TWS even if they did not reduce their payroll withholdings. Therefore, employers must file PD27 forms and elect a TWS rate of 0%. This is required for the periods from March 18, 2020 to June 19, 2020. Employers can file the paper form PD27 or submit it online through their CRA My Business Account.
CEBA Expansion and Income Inclusion
On October 9, 2020, Finance announced the Canada Emergency Business Account (CEBA), which previously provided $40,000 to eligible businesses, will be expanded allowing eligible businesses who qualified for the previous CEBA loan to get an additional $20,000 loan. Half of this amount will be forgivable and treated as a grant if the loan is repaid by June 31, 2022.
The forgivable portion of the CEBA loan is taxable as income. CRA has clarified that the forgivable portion of the loan is taxable in the year the loan is received regardless of when the amount actually becomes forgiven. As a result, many businesses will have to include the $10,000 forgivable amount from the initial $40,000 loan in 2020 income. There may be an opportunity to defer the income inclusion by electing to offset a related expense where the CEBA funds were used. For example, a corporation with a June 30, 2020 year end that used the CEBA funds after year end could elect to offset expenses incurred in fiscal 2021 and effectively defer the income inclusion.
COVID Home Office Expense Reimbursement
As previously discussed in our Fall Tax Update, the CRA was in consultation for the administrative process for individuals to claim home office expenses as a result of working from home during the pandemic. Although no details have been formally announced, the CRA has confirmed that up to $500 may be reimbursed to employees tax free by their employers for costs they incurred to acquire computer equipment, home office furniture and other home office items required for working remotely.
Zero Emission Vehicle Incentive
Zero emission vehicles acquired from March 18, 2019 to December 31, 2023 are eligible for 100% write off up to a limit of $55,000 plus tax. The GST/HST paid is also eligible for a full input tax credit subject to the same $55,000 limit. The write off percentage will be reduced to 75% for vehicles purchased between January 1, 2024 and December 31, 2025 and 55% between January 1, 2026 and December 31, 2027. The government is also proposing a $5,000 purchaser incentive rebate but details have not been provided.
New Trust Reporting Requirements
Beginning in 2021, the trust reporting requirements are changing which may require mandatory filing of T3 Trust Income Tax Returns. In addition to mandatory filing for certain trusts, they must also disclose the settlor, trustees and beneficiaries. Certain trusts are exempt from these additional measures with the most notable being gradated rate estates (an estate within its first 36 months), qualified disability trusts and trusts with cash/public company shares with a fair value of less than $50,000.
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.