The government has made more tweaks this week that are worth bringing to your attention.
1.Broadening eligibility for CERB (Canada Emergency Response Benefit)
The government has broadened the criteria. Previously, you had to declare NO income from (self-)employment in the relevant period, to be eligible for CERB. The government has recognized that in some cases you may have suffered a very significant drop – but not necessarily down to nil.
You can now earn up to $1,000 a month without it affecting your eligibility – so this covers trivial work, small emergency work you do for clients etc….. For example, we work with a social media consultant, who has a small client on a $200/mo retainer – she didn’t want to have to fire this client, in order to apply for CERB! We welcome this.
BUT… there are still some unanswered questions that affect entrepreneurs.
Please note that the comments below are our INTERPRETATION. Please don’t assume that this is how the government would look at it, if they revisit later. We hope to get some more explicit answers to these questions. If you’re uncomfortable with the risk of claiming…. See if you can hold off, and apply retroactively if we learn more later.
- Does “stopped” mean you’re sitting at home?
- The CERB page still says that you have to have “stopped working” – but then immediately refers to the $1,000 limit, which implies that you might still be doing SOMETHING. See the above note. We assume that this is in-a-rush editing.
- The reality for a business owner is that you’re likely running your tail off, doing everything to keep afloat – especially if your staff aren’t working…. That’s not consistent with “stopped working” either. But it doesn’t mean that there’s any money you can take out….
- We assume that the intent is along the lines of “You are generating less than $1k a month from employment or business activities”.
- How does this apply if you own an incorporated business? It’s still not explicit how this applies to owners of corporations, who have suffered a significant drop such that the owner isn’t taking anything out.
- Let’s say the owner was previously on salary – and the business (and owner) is eligible for the wage subsidy. If so, then the obvious answer is to continue to pay yourself 75% of what you made before (reinjecting back into the corp if you have to), and then claim the subsidy. CERB not required or available.
- But let’s say that the owner was not previously taking a formal salary, but took money as and when available, which means not taking money right now. In theory, you could pay yourself a salary of up to $999, and still be eligible for the CERB as you have less than $1k of employment income. But…. is that consistent with the requirement to have stopped working? [Note – a business owner can’t add themselves to payroll for the first time today, to try to get the wage subsidy. They thought of that.]
- Our instinct is that the $1k threshold is likely “safe” and the owner can take this money out and still be eligible … but please be aware that’s based on our interpretation of the intent of the benefit. It just seems unfair not to be able to get any benefit. Again, we hope for clarity on this.
- Is income “gross” or “net”? For proprietors, for whom the business income is their own income: The government has not clarified whether “income” refers to gross income [the amount you bill], or net income [the amount you end up with after you pay your business expenses.] Again, our instinct is “net” – but the same caveats apply as per above.
We previously noted that the requirement for having at least $5k in (self)-employment income in 2019 was worded in a way that may seem to exclude business owners who take their money out as dividends. This has now been clarified – they’re not excluded, so can be eligible. Good.
2. Broadening eligibility for the CEBA (Canada Emergency Business Account)
This is the $40k government-backed interest-free loan. Funds have already flowed to 200,000 businesses from commercial banks. The credit unions are coming on line this week.
The only eligibility requirement is to have paid payroll in 2019. The gov’t’s just expanded the criteria – again, we welcome this:
- WAS – payroll between $50k-$1m.
- NOW – payroll between $20k-$1.5m
- You’ll need your T4SUM from your 2019 T4 filing.
- Please read your lending agreement and take note of any restrictions on use. The money is supposed to be to help you pay bills.
- It’s interest-free and $10k is forgivable if you repay $30k on the required timeline (end of 2022). That $10k is taxable, but that’s a minor issue for the future!
- Some people have asked if they can borrow $40k, immediately repay $30k and keep the other $10k…. We suspect this is not what the plan was meant for….!
3. 75% Wage subsidy – clarity on eligibility criteria – Support for Xero users
No update from the government since our last note. But this is addressed to our clients who use Xero as their accounting system (including all our full-service clients).
You’re aware that you need to have suffered a 15% drop in revenue in March 2020 (compared to either March 2019, or Jan/Feb 2020) or a 30% drop in April or May to be eligible in those months. You have the option to run this comparison on a cash (money received) or accrual (as billed) basis.
We are creating a Xero report that will allow you to easily review the 4 scenarios allowed under the wage subsidy:
- change in your revenues compared to Jan/Feb average
- change in your revenues compared to same month last year
- each on either cash or accrual basis
We can then determine which is the most applicable for your business and if you qualify for the wage subsidy. This report will also allow you to provide the support required for CRA.
We’ll bring this to you as soon as it’s ready. It will be before the portal opens for applications!
4. Tax payment and filing deadlines – income taxes
The filing deadline has been pushed to June 1 for any income tax returns that were previously due to be filed before that date. At this point, this mainly affects personal or corporate tax returns that were due to be filed by April 30.
CRA has extended the payment date on all such deadlines to September 1. They have stated that they will not charge interest or penalties if taxpayers meet the Sep 1 deferred payment requirements. https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/covid-19-filing-payment-dates.html)
This leaves unclear what happens if you file late (eg. on June 2) – and then find you’re not in a position to pay all balances owing by Sep 1. In this case, they may hit you with a late filing penalty. For this reason, we strongly encourage you to meet the revised filing deadlines if you can.
We are currently working with all corporate clients with an outstanding April 30 deadline, and don’t think any of those are in danger of filing late. However, this is another good reason to make sure to bring us personal tax material as soon as you can!
Sooner filed, the sooner any refund comes to you!
5. Tax payment and filing deadlines – HST
See FAQ#1 in the below. You’re allowed to delay any further HST payments (installments, or payments on filing) until the end of June, without interest.
CRA also recognizes that the COVID crisis may make it difficult to get the information you need to file. So – although they have not changed their filing deadlines – they’ve taken an administrative position that they won’t charge any late filing penalty so long as you file by end of June.
If we file your HST returns: We are aware of the above…. but we are still making all efforts to file by the “regular” deadline. We would be grateful for your support, so we can keep your compliance record on track.
Sooner filed, sooner any refund comes to you!
6. Commercial rent – help is coming
The PM announced the Canada Emergency Commercial Rent Assistance program today – but rent is governed by provincial law, so this needs a bit of work before they roll it out. We assume there’s some haggling going on behind the scenes. We’ll keep you posted.