Is the COVID-19 government assistance my business received taxable?

Several measures were introduced during 2020 to help Canadian businesses navigate the economic impacts of COVID-19. Often these measures included cash payments. This article provides an overview on what government assistance may be taxable to your business for 2020.

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For programs that supported Canadian businesses (which may include non-profit organizations and/or charities), the responsibility will be on the business owner to properly report the assistance their business received throughout 2020 and beyond as income.  

The five key benefit programs for businesses:

Temporary Small Business Wage Subsidy (TSBWS)

The TSBWS provided eligible employers with a temporary wage subsidy equal to 10% of remuneration paid, during the period of March 18 to June 19, 2020, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.  

  • To obtain this support, employers were eligible to reduce their remittances of income tax withheld on their employees’ remuneration by the amount of the subsidy.  
  • If an eligible employer did not reduce payroll remittances during the year, a request can be made to either have the subsidy paid at the end of the year or transferred to the next year’s remittance.
  • Form PD27 is required to be filed with CRA to reconcile the reduction of source deduction remittances.  The form can be found here.
  • The subsidy is considered to be income in the same fiscal period as the source deductions were reduced.  

Canada Emergency Wage Subsidy (CEWS)

The CEWS is a program that provides assistance to businesses who have experienced a drop in revenues as a result of COVID-19.  The subsidy is calculated as a percentage of eligible employee remuneration.

  • CEWS began on March 15, 2020 and is anticipated to continue until June 5, 2021.
  • Program is divided into periods, each period consisting of four weeks.
  • The subsidy is considered to be income at the end of the specific period for which a subsidy claim is made.  For example, Period 8 for CEWS ended October 24, 2020.  A claim is not required to be submitted to CRA for this period until 180 days after the period has ended, as such, funds for this period may not be received until sometime in 2021.  However, the subsidy would be considered to be received (and thus income) as of October 24, 2020, and not as of the day the funds are actually received.  
  • If a CEWS claim is subsequently amended after the applicable tax return has been filed, the tax return will also need to be amended to adjust the corresponding income inclusion.

Canada Emergency Commercial Rent Assistance (CECRA)

The CECRA was available to provide relief for small businesses with respect to their commercial rent payments.  The program offered forgivable loans to eligible commercial property owners who offered a minimum of a 75% rent reduction to small business tenants for the months of April through June 2020. The program was extended until September for those who qualified initially.  

  • The loans are considered to be forgivable as of December 31, 2020, assuming program requirements have been met.  There is an assumption the program requirements have been met until it is proven otherwise.
  • The forgivable loans are considered by 12(1)(x) of the Income Tax Act (ITA)to be income in the fiscal period in which the loan proceeds are received.
  • If subsequently the loans must be repaid due to non-compliance with the program, a deduction under ITA 20(1)(hh) would be available in the year of repayment.

Canada Emergency Rent Subsidy (CERS)

CERS provides rent and mortgage support until June 2021 for qualifying organizations.  The rent subsidy is paid directly to tenants and property owners.  The amount of subsidy is based on the decline in revenue experienced by the tenant or property owner. 

  • CERS began on September 27, 2020 and is anticipated to continue until June 5, 2021.
  • Program is divided into periods, each period consisting of four weeks.
  • The subsidy is considered to be income at the end of the specific period for which a subsidy claim is made.  For example, Period 3 for CERS ended December 19, 2020.  A claim is not required to be submitted to CRA for this period until 180 days after the period has ended, as such, funds for this period may not be received until sometime in 2021.  However, the subsidy would be considered to be received (and thus income) as of December 19, 2020, and not as of the day the funds are actually received.  
  • If a CERS claim is subsequently amended after the applicable tax return has been filed, the tax return will also need to be amended to adjust the corresponding income inclusion.

Canada Emergency Business Account (CEBA)

The CEBA allowed financial institutions and credit unions to provide initial loans of up to $40,000, guaranteed by the Government of Canada, to qualifying small businesses and non-profits.  The loans are interest free for the first year. Repaying the balance of the loan on or before December 31, 2022 will allow for loan forgiveness of 25% (up to $10,000).  The program was expanded by allowing for an additional $20,000 of funds to be lent, with half of the additional proceeds forgivable if the balance is repaid by December 31, 2022. 

  • The portion eligible for forgiveness is considered by ITA 12(1)(x) to be income in the year in which the loan proceeds are received.
  • In lieu of the income inclusion, an election made under ITA 12(2.2) allows for the reduction of an outlay or expense made or incurred by the taxpayer before the end of the following taxation year.  If hoping to rely on the election under ITA 12(2.2) we strongly recommend consulting with your tax advisor for guidance.  
  • If the debtor fails to meet the obligations required for the forgiveness to apply, generally determined after December 31, 2022, ITA 20(1)(hh) will allow for a deduction equal to the amount repaid to the financial institution that had been previously reported as income under ITA 12(1)(x).  

Please note: the above summary may not be exhaustive.  

If you received benefits not noted here, your IG Consultant and tax advisor can help you identify whether the benefits you received may be reportable as taxable income to you in 2020.

Written and published by IG Wealth Management as a general source of information only, based on the CRA information believed to be accurate as of the date of publishing. Not intended as a solicitation to buy or sell specific investments, or to provide tax, legal or investment advice. Seek advice on up to date withholding rules and rates and on your specific circumstances from an IG Consultant.  Trademarks, including IG Wealth Management and IG Private Wealth Management are owned by IGM Financial Inc. and licensed to its subsidiary corporations.