On October 9, 2020, the Government of Canada announced a plan to introduce legislation targeted at providing support to Canadian businesses designed to help them survive any future waves of the COVID-19 pandemic, cover their overhead costs so they can continue serving their communities; and align them for a strong recovery post-pandemic. The Government of Canada’s plan includes three primary vehicles: The Canada Emergency Rent Subsidy (CERS), An extension to the Canada Emergency Wage Subsidy (CEWS); and an extension to the Canada Emergency Business Account (CEBA). We provide a description of these three vehicles, and how they will likely impact your business:
Canada Emergency Rent Subsidy (CERS)
CERS is aimed at providing direct assistance to business, charities and non-profit organisations to help them keep operating where they are through helping them meet rent obligations or mortgage arrangements. It will take the place of the Canada Emergency Commercial Rent Assistance Program, and unlike that system, will not require landlords to apply for relief. It is however also going to provide assistance to property owners.
There are two primary categories of businesses, charities and non-profits, which will receive assistance. Those who have seen a decline of more than 70% of their revenue due to the Covid-19 pandemic and those who have seen a downturn of 69% or less.
Those in the first category may be able to receive up to 65% of their eligible expenses until December 19, 2020. While those in the lower percentages of revenue reduction may be eligible for a subsidy, on a sliding scale, based on their revenue decrease. Additionally, the CERS will provide a top-up of 25% emergency rent subsidy, in addition to the 65% subsidy, to businesses and organizations that are temporarily shut down due to public health orders.
While the CERS program opened in November 2020, applicants are able to make retroactive claims retroactive dating back to September 27, 2020.
Canada Emergency Wage Subsidy (CEWS)
Canada Emergency Wage Subsidy (“CEWS”) is designed to help employers pay their employees wages. The hope is that companies, charities and non-profit organisations are not only able to maintain their employees on the payroll during the pandemic and prevent job losses, but to also create new employment opportunities.
Any business from start-up to multinational that has experienced a loss due to the Covid-19 pandemic may be eligible for the CEWS to cover a portion of their employee wages, retroactive to March 15, 2020. The current maximum base subsidy rate of 40% and the maximum top-up rate of 25% are set to apply through June 2021. Employers that experienced a decline of 70% or more against the average of their January 2020 and February 2020 revenue, or the same period from the year prior, may be eligible to receive up to 65% of their wage bill as a subsidy (rates may go up to 85% for earlier periods).
Commencing period 5 (July 5, 2020) there is no longer a requirement to have a minimum revenue drop of 30%. From this date forward, any drop in revenue to the comparable period should result in a subsidy percentage to apply.
In addition, an application deadline was created: January 31, 2021 or 180 days after the end of the subsidy period being applied for, whichever is later. Therefore, Period 1-4 (2020) should be applied for by January 31, 2021 in order to receive a subsidy for those periods.
Canada Emergency Business Account (CEBA)
CEBA provides eligible small businesses and not-for-profit organizations that apply before March 31, 2021, access to an interest-free loan of up to $60,000, to help cover their operating costs and expenses, while $20,000 (of the loan balance) may be forgiven if the loan is repaid by December 31, 2022.
To be eligible to apply, a business or not-for-profit organization (charities can apply if they have a related business connected to their charitable mandate) are required to have had 2019 payroll between $20,000-$1,500,000, or non-deferrable expenses of $40,000-$1,500,000 in 2020. Non-deferrable expenses include items such as rent, property tax, utilities, insurance, and debt payments. These expenses eligible if they were already incurred in January and/or February 2020, or are due to a legal or contractual obligation as at March 1, 2020 and cannot be avoided or deferred beyond 2020 even during a shutdown and depressed revenues as a result of COVID.
When determining eligibility of non-deferrable expenses, the expenses are to reduced by any other COVID assistance received. Claimants should take time to consider whether CEBA is more beneficial in the short-term (cash-flow) and long-term (forgiven amount), when considering applying for CEBA or a program such as CERS.
For each program, CEWS, CERS, and CEBA the forgiven, or subsidy, amount should be factored into your 2020 corporate tax return.