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?
Canada Emergency Response Benefit (CERB)
By far, the best known and most popular benefit is the CERB payment of $2,000 per month which has now been extended to October. 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. To estimate how much to set aside, you can consult our 2020 tax rate schedule .
Canada Emergency Business Account (CEBA)
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 loam 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 same treatment will apply to the CEBA supplement of $20,000 (of which $10,000 the Federal Government intends to forgive half) which has yet to get royal sanction from Senate.
Canada Emergency Commercial Rent Assistance (CECRA)
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.
Canada Emergency Wage Subsidy (CEWS)
The CEWS is a wage subsidy covering a percentage of wages paid by a qualifying business up to a maximum per week which will both vary depending on the claiming period. 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.
Payments to Seniors and Canadians with Disabilities
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.