Income Tax And Economic Policy Updates For 2020

 

We are not going to tell you all the details relating to the medical issues of Covid 19, or what steps the BC Ministry of Health is currently recommending – we will leave that for the experts.

No matter what is happening, all businesses and individuals are impacted. We are going to simply outline the key points of the many different announcements over the last few days, relating to the financial stimulus to be granted to your small businesses, and to you and your family to help you through this time.

Helping Small Businesses

The Federal and BC Governments are helping small business employers in a number of manners, such as wage subsidies, interest rate reductions on mortgages, and a business loan fund, and special EI changes.

Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy provides up to a 75% wage subsidy for eligible employers for up to 12 weeks, retroactive to March 15, 2020.

Eligible Employers:

• This will be available for businesses of all sizes, non-profits, and charities who have experienced a drop in revenue of at least 30%, with no cap in the number of employees.
• Newly announced on April 8th, for the month of March, businesses will only have to show a decline in revenues of 15% to be eligible for the subsidy.

How Eligibility it Calculated:

• Revenue under this program will be calculated using the employer’s revenue from its business carried on in Canada from arm’s length sources. Revenues from extraordinary items and amounts on the account of capital should be excluded. An employer’s normal accounting method should be used.
• Eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began. Businesses can also choose to use the month of January or February 2020 as a reference period to show a loss in revenue, rather than compare to 2019 figures.
• Charities and non-profits can choose to include the government subsidy or not when calculating loss of revenue.

Eligible Period

Eligible Renumeration

• Eligible remuneration may include salary, wages, and other remuneration. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.
• A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration.

Amount of Subsidy

• The subsidy amount for a given employee on eligible remuneration paid between March 15 and June 6, 2020 would be the greater of:

1. 75 per cent of the amount of remuneration paid, up to a maximum benefit of $847 per week; and
2. the amount of remuneration paid, up to a maximum benefit of $847 per week or 75 per cent of the employee’s pre-crisis weekly remuneration, whichever is less

• These employers would be expected where possible to maintain existing employees’ pre-crisis employment earnings. Employers must make their best effort to top-up employees’ salaries to bring them to pre-crisis levels.
• Employers will also be eligible for a subsidy of up to 75 per cent of salaries and wages paid to new employees.
• There would be no overall limit on the subsidy amount that an eligible employer may claim.

How to Apply

• Applications will be made through CRA’s My Business Account, as well as a web-based application.

Compliance

• Employers would have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees.
• Penalties may apply, including fines or imprisonment, in cases of fraudulent claims. In addition, anti‑abuse rules will be proposed to ensure that the subsidy is not inappropriately obtained and to ensure that employees are paid the amounts they are owed.

Interaction with 10% Wage Subsidy

• For employers that are eligible for both the Canada Emergency Wage Subsidy and the 10 per cent wage subsidy for a period, any benefit from the 10 per cent wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the Canada Emergency Wage Subsidy in that same period.

Interaction with the Canadian Emergency Response Benefit

• An employer would not be eligible to claim the Canada Emergency Wage Subsidy for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit.
• Employers who are not eligible for the Canada Emergency Wage Subsidy would still be able to furlough employees who will receive up to $2,000 a month.

Temporary Wage Subsidy

• Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.

1.  The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.
2. The credit is received by way of a reduction in payroll remittances of income tax withheld on their employees’ remuneration. It is not available to reduce EI or CPP withholdings.

• The credit is available for renumeration paid between March 18 and June 19, 2020.
• If subsidy calculated exceeds payroll remittances, future payroll remittances can be reduced, even if they fall out of the application period of the subsidy (the March 18 – June 19th period).
• The subsidy received will be considered taxable income in the year received.
• Records to support the subsidy calculation will need to be kept, including total renumeration paid, total tax withholdings, and eligible number of employees.

EI Change

• Many companies are faced with the sudden and difficult decision to lay off staff at this time. If you are such an employer, you may want to consider consulting with an employment lawyer prior to making lay-off decisions. It is our understanding that in BC, there is limited ability to temporarily lay off employees.
• The one-week waiting period for EI for those in quarantine has been waived. It appears that this only applies to quarantine situations. An employer must still file an ROE to be eligible.

Canada Emergency Business Account

• Up to $40,000 will be provided to small and medium business, applications are made through your primary banking institution.
• The amount is considered a revolving line of credit until December 1, 2020, at which time it will be converted into a 5-year loan that matures on December 31, 2025.
• The loan is interest-free until December 31, 2022. No principal repayments are required during this period unless you are seeking to repay $30,000, or 75% of the loan, to qualify for the $10,000 forgiveness feature.
• If businesses choose to extend the loan beyond this date, an annual interest rate of 5% will apply during the extension period.

Eligibility:

• Businesses or not-for-profits will be eligible to apply for this loan if they have:

1. Organizations will need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019.
2. As per the requirements of the program set out by the Government of Canada, businesses will agree to use funds from this loan to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, insurance, and property tax.

• Further details should be announced by the second week of April.

Business Credit Availability Program (BCAP)

• BCAP will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion of additional support, largely targeted to small and medium-sized businesses.
• BDC and EDC are cooperating with private sector lenders to coordinate on credit solutions for individual businesses, including in sectors such as oil and gas, air transportation and tourism.

Changes to the Canada Summer Jobs (“CSJ”) Program

• CJS employers will receive a subsidy of up to 100% of the cost of hiring students, and students can be hired on a part-time basis.
• The timeframe for job placements of students will extend into winter, as some jobs will starting later than usual.
• It is our understanding that businesses must apply to be a part of this program, and applications for the year are currently closed.

The Canada Account – Loans, Guarantees or Insurance

• The government is changing the Canada Account so that the Minister of Finance would now be able to determine the limit of the Canada Account in order to deal with exceptional circumstances. The Canada Account is administered by Export Development Canada (EDC) and is used by the government to support exporters when deemed to be in the national interest. This will allow the government to provide additional support to Canadian companies through loans, guarantees or insurance policies.

Farmers

• The near-term credit available to farmers and the agri-food sector will also be increased through Farm Credit Canada.

Interest Rates

• The Bank of Canada “overnight” rate has been lowered to 0.25%. Expect bank interest and mortgage (and savings) rates to go lower as a result.

Provincial Updates (New)

• The scheduled April 1 increase to provincial carbon taxes, and registration requirements on e-commerce and carbonated drinks will be delayed, subject to at timing review by September 30, 2020.
• BC business and commercial properties will also have their property tax rate cut in half for 2020.

 

 

BC Hardship Assistance – Awaiting EI Benefits

• BC has a Hardship Assistance program designed to meet essential needs of applications for income assistance who meet all other conditions of eligibility, except they are waiting for EI. Hardship assistance is provided on a temporary basis, for only one month at a time at this time. Eligibility for hardship assistance must be re-established each month.
• To qualify for this category of hardship, applicants must apply for EI benefits with from the federal government and sign an EI Assignment of Benefit.
• More information can be found on the BC Government Website:

 

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