- April 14, 2020
- Posted by: Harpreet
- Category: Tax Tips
COVID-19, Taxes and the Circle of Life
Most of us agree that we were not expecting 2020 to start out the way it has. COVID-19 has caused ruckus throughout the world and has governments trying to figure out financial solutions to keep the economy stimulated. It is commendable that different levels of government are working together to approve financial assistance packages to help people during these difficult times. I am surprised with the speed at which people are receiving money and often times, without much ask!
As commendable as this is, I am also confused how the government intends to manage the aftermath of all this. When I look six months or one year from today, I see us in a state of chaos where the government is trying to collect monies from individuals who, based on the criteria, did not qualify for it (rightfully or wrongfully). Remember that amounts being expended now, will be funded out of our pockets in some form (circle of life!).
Would personal and corporate taxes be going up? Likely, but when and how much is the question.
The changes to the CERB and CEWS programs are being announced rapidly. I will first do a brief overview of the main programs or changes currently available to business and individuals wanting to take advantage. Then, I will address some common questions I am being asked.
CERB (Canada Emergency Response Benefit)
- Available to individuals personally (assuming they qualify personally)
- Benefit is meant to assist those that have stopped working for at least 14 days due to COVID-19
- Amount of benefit is $500/week for up to 16 weeks (everyone gets the same amount!)
- if you are over 15 years of age and
- stopped working due to COVID-19 and
- have not voluntarily quit your job and
- had income of at least $5000 of employment and self-employment income (as well as some other types) in 2019 or in 12 months prior to the date of the applying and
- you are expecting to be without employment for at least 14 consecutive days in the initial four-week period
- Fastest way to apply is online through MyAccount with the CRA.
- Recently it was confirmed that if you are in receipt of non-eligible dividends from a small business corporation of at least $5,000 in the previous 12 month period, you would be eligible for the CERB (this is a welcome change!).
- Remember that this is a taxable benefit and you will be paying tax on this.
- Review the below website for some great Q&A https://www.canada.ca/en/services/benefits/ei/cerb-application/questions.html
CEWS (Canada Emergency Wage Subsidy)
- Available to employers (assuming they qualify)
- Goal is to bring employees back onto payroll to reduce the burden on the CEWS and as per Department of Finance to “help better position Canadian companies and other employers to more easily resume normal operations following the crisis.”
- See article I wrote discussing the wage Subsidy in detail HERE. Below I only discuss changes and updates on this.
- Eligible employers would include those eligible that see a drop of at least 15% of their revenue in March 2020 (this is new!) and 30% for the following months.
- Employers are allowed to calculate their change in revenue using an “alternative benchmark” to determine their eligibility to provide flexibility to those who don’t have benchmarks (high-growth firms, non-profits etc)
- Allows employers to compare revenue using average of their revenue earned in January and February 2020 or year over year approach.
- A special rule applies to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees is limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of the lesser of $847 per week and 75% of the employee’s pre-crisis weekly remuneration. The subsidy is only available in respect of non-arm’s length employees employed prior to March 15, 2020.
- Expanded to introduce a new 100% refund for certain employer paid contributions to EI and CPP (and QPIP if applicable).
- This refund covers 100% of employer-paid contributions for eligible employees for each week throughout which those employees are on leave with pay and for which the employer is eligible to claim for the CEWS for those employees.
- This refund is not subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS. There is no overall limit on the refund amount that an eligible employer may claim.
Temporary 10% Wage Subsidy
- For eligible small employers a temporary wage subsidy for a period of three months equal to 10% of renumeration paid during that period to a max subsidy of $1,375 per employee and $25,000 per employer.
- An eligible employee is an individual who is employed in Canada.
- Businesses will be able to reduce remittance of income tax withheld on their employee’s renumeration. Note You cannot reduce your remittance of CPP contributions or EI premiums from your payroll deductions (employee or employer portion)
- For employers that are eligible for both the CEWS and the 10% Temporary Wage Subsidy for a period, any benefit from the Temporary 10% Wage Subsidyfor remuneration paid in a specific period will generally reduce the amount available to be claimed under the CEWS in that same period
Note: Payroll remittances are not subject to deferral as part of the tax measures to help support those affected by the COVID-19 outbreak. You must continue remitting payroll deductions by your remittance due date.
Canada Emergency Business Account (CEBA)
- Provides credit for small businesses to pay for immediate operating costs such as payroll, rent, utilities, insurance, property tax or debt service.
- 100% funded by government of Canada
- Available to Canadian employers with $50,000 to $1million in total payroll in 2019 and operating as of March 1, 2020.
- Interest free loan of $40,000 to those eligible businesses.
- If government repaid by December 31, 2022, 25% (up to $10k) will be forgiven.
- If not able to repay, will convert into a regular loan 3 year term at 5%.
- Program is being administered through your financial institutions and credit unions
I still have fundamental issues with government giving out funds to individuals via the CERB, with no verification of their eligibility. Majority of the tax returns are prepared electronically and processed electronically. Is there not a way to filter data and information so that the first tier of individuals that qualify are identified? We can then work on those whose situations have changed? If this is not possible, then the CERB should be available to everyone. Asking people to give these monies back a few months from now due to them not being eligible, seems impractical. Frankly, some individuals may have spent or used the money and may not be able to repay.
The CERB is available only if you are without work for at least 14 consecutive days. One common question I get asked is if someone works via a corporation and does not pay themselves from their corporation (dividend or salary), would they be eligible for the CERB? I think the answer to this question is, NO, they should not be eligible for the CERB as they are still working. I think this is misunderstood by a lot of people who continue to experience reduced income, but don’t qualify for any of the other business benefits available for various reasons. I think clarity on this is a must as this is not clear from the current guidelines.
Furthermore, those that are taking dividends from their corporation appear to be “left-out” of the business assistance packages. The interest-free loan of $40,000 is only available to those that have a minimum of $50,000 of payroll in 2019. What about someone that has employees on T4 (just shy of $50,000 gross payroll) and remunerate themselves via a dividend? These individuals do not qualify for the loan. Furthermore, the CEWS only applies to wages (which may include a spouse that was previously working for the corporation). What if someone was paying a dividend to a spouse as they were actively involved in the business? Why does the CEWS provide a subsidy for the spouse in this case but not in the case of a dividend?
Another common question I am asked is, what if a taxpayer’s spouse is given a salary instead of dividend, would the CEWS be available? I think the answer is No. There is a special rule for employees that are dealing at arms-length with the employer. CEWS is only available ‘…in respect of non-arm’s length employees employed prior to March 15, 2020.’ I interpret this to mean that if you spouse was not on payroll prior to this date, then the CEWS would not be available on salaries paid to them. I again don’t understand why we are differentiating someone who takes compensation via a salary vs dividend in this situation? TOSI already deals with payments of “reasonable” dividends to family members.
Furthermore, it is vital to note that an employer receiving the CEWS for an employee implies that the employee is on the payroll of the employer. One cannot claim both the CEWS and the CERB for the same individual.
As you can see, this is complicated. I understand that the government is making ongoing changes rapidly and regularly and it is refreshing to see that our politicians are concerned with the well-being and state of our economy and people. With that being said, however, I think a lot of small businesses are not able to take advantage of these packages and are frustrated as they do not know how to seek help. I would request that clarity be provided on these questions, and several others which remain unanswered.
The opinions expressed in this article are those of the author.
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