COVID-19 | Government Assistance: Know What You Owe – Update

On February 9, 2021 the Minister of National Revenue announced targeted interest relief to Canadians who received COVID-19 support and whose 2020 taxable income is $75,000 or less.  Under this measure Interest will not be charged until April 30, 2022 on income tax owing for the 2020 taxation year. The relief applies to Canadians who received benefits under the following programs: CERB, CESB, CRB, CRCB, Employment Insurance; similar provincial emergency benefits.

In addition, over the last several months (although to most it seems like years) many of us have received government aid, whether directly through CERB payments, forgivable loans, wage subsidies, rent subsidies and other payments. Are these payments taxable, and if so, how?

For a detailed description of the various assistance programs and the eligibility criteria, check out the COVID-19 Crisis Relief Program page on our web site.By far, the best known and most popular benefit is the CERB payment of $2,000 per month which ended on September 27, 2020.  CERB payments are taxable as ordinary income at the same tax rate as other income such as salary and are added to all other taxable income earned in 2020.

If you received the CERB in 2020 you either have received or will shortly receive a tax reporting slip from the federal government which should be used when filing your 2020 personal tax return.

In the event it is determined that you were not eligible for the CERB and are required to repay it in 2021 you will be entitled to deduct the amount repaid from on your 2021 income tax return.

The CERB expired in December 2020 and has been replaced in 2021 by three new benefit programs, the Canada Recovery Benefit (CRB), the Canada Recovery Sickness Benefit (CRSB) and the Canada Recovery Caregiving Benefit (CRCB).The CRB is the program most similar to the CERB and is meant to provide assistance if your employment or self-employment income has been affected by the pandemic.  As is the case with the CERB the payments are taxable as ordinary income.  Unlike the CERB the CRB is income based and can be “clawed back “at the rate of $0.50 for every dollar of annual net income, regardless of the source, over $38,000.  Any such repayments are tax deductible in the year repaid.   CRB benefits are available for 36 weeks.  By then we all hope that the benefit will no longer be necessary.If you meet the eligibility criteria, the CRSB of $500 per week is available for a maximum of four weeks which need not be consecutive.  It is taxable as ordinary income.  To alleviate the tax bite at the end of the year 10% of the payment ($50 per week) is being deducted at source from the payment.

This program runs from September 27, 2020 to September 25, 2021.If you meet the eligibility criteria, the CRCB of $500 per week is available for a maximum of 32 weeks which need not be consecutive.  It is taxable as ordinary income.  To alleviate the tax bite at the end of the year 10% of the payment ($50 per week) is being deducted at source from the payment.

This program runs from September 27, 2020 to September 25, 2021.The CEBA is a $40,000 non-interest-bearing loan available to businesses with operating costs. If three-quarters or $30,000 is repaid by December 31, 2022, the remaining $10,000 is forgiven and need not be repaid. If $30,000 is not repaid by that date, the whole amount ($40,000) is converted into a 3-year term loan repayable on December 31, 2025, with interest at 5% payable monthly.

Normally, proceeds of a loan are not taxable when received and if repaid in full, will never be taxable. However, since a portion of a CEBA loan is forgivable, that portion ($10,000) is considered government assistance and is taxable in 2020, as ordinary business income.  If the $30,000 is repaid by December 31, 2022, that will be the end of the matter. However, if it is not repaid by that date and is converted into a term loan of $40,000, the forgivable portion which was included in 2020 income can be deducted from business income in the year it is repaid.

The maximum amount of the loan was increased to $60,000 effective December 4, 2020. Up to $20,000 of the total $60,000 is forgivable if repaid by December 31, 2022.The CECRA is a program available to commercial landlords who agree to reduce their tenant’s rent by a minimum of 75%. According to the terms of the program, eligible landlords are entitled to a forgivable loan of up to 50% of monthly rent.  Since the tenant is paying 25%, landlords will only be out of pocket for 25%.  Quebec has additional incentives to reduce landlord’s out of pocket expenses even further.

As is the case with the CEBA, the forgivable portion of the rent is included in business income in 2020 as business income.  If the terms of the program are not met and the loan ceases to be forgivable, any amount repaid is deductible as a business expense in the year of repayment.The CEWS is a wage subsidy covering up to 75% of wages paid by a qualifying business up to a maximum of $847 per week Since the subsidy is considered government assistance, it reduces, on a dollar for dollar basis, the deduction for salaries paid to employees.  For example, if an employee is paid $1,000 per week and the employer receives CEWS of $750 in respect of that employee, the CEWS reduces the deduction for salary paid and the employer may only deduct $250.   As well, the CEWS reduces the amount of salary that would otherwise be available for any other tax credits that are calculated based on salaries paid.All seniors eligible for the Old Age Security Pension are eligible for a $300 onetime payment topped up by an additional $200 if the senior is eligible for the Guaranteed Income Supplement.  This onetime payment is not taxable.

Similarly, Canadians with disabilities that are entitled to the disability tax credit or receive a disability pension under the Canada Pension Plan or Quebec Pension Plan are entitled to a onetime payment of $600.  This onetime payment is not taxable.We offer a Crisis Relief Program to support you throughout the process. Do not hesitate to contact a member of our team.

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2021-03-08

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