In March, the federal government announced the creation of the Canada Emergency Business Account (CEBA) to support businesses impacted by COVID-19. You can view our previous CEBA releases here. In brief, eligible business could receive a loan of up to $40,000 from their financial institution on which interest will not be charged until December 31, 2022, and up to $10,000 of the loan may be forgiven.
The original legislation had requirements restricting access to the credit for some business owners. These requirements were broadened in April to include more businesses and in May the government announced eligibility would be further broadened to include businesses that had non-deferrable expenses but were ineligible because they did not meet the payroll requirements. Earlier this week the government released more details on how businesses may qualify under the new rules.
To qualify for the CEBA loan, all businesses must:
- Be a Canadian business in operation as at March 1, 2020;
- Have a federal tax registration number;
- Have an active business chequing or operating account with a participating financial institution which was opened prior to March 1, 2020 and was not in arrears on existing borrowing facilities; and,
- Intend to continue to operate its business or resume operations and agree to participate in post-funding surveys conducted by the government.
There are now two streams in which businesses that meet the above-noted requirements can qualify for the CEBA:
Stream #1): Payroll Stream
This is the method in which businesses qualified for these loans under previous eligibility requirements. A business can qualify if it reported payroll in box 14 of its 2019 T4 Summary between $20,000 and $1,500,000.
Steam #2): Non-deferrable Expenses Stream
This is the new method in which businesses can qualify. To qualify under this stream, they must:
- Have filed a 2018 or 2019 tax return; and,
- Have eligible non-deferrable expenses in 2020 of between $40,000 and $1,500,000
Eligible non-deferrable expenses must be one of the following:
- Wages or employment expenses to arm’s length parties;
- Rent or lease payments for real estate or capital equipment used for business purposes;
- Payments for insurance, property taxes, telephone or utilities;
- Regularly scheduled debt service payments; or,
- Payment incurred under agreements with independent contractors and fees required in order to maintain licences, authorizations or permissions necessary to conduct business.
The eligible non-deferrable expenses must be reduced by funding already received by the business through other government COVID-19 response programs such as the wage or rent subsidies.
It is our understanding that the time-period which must be considered for the non-deferrable expenses is the 2020 calendar year. Therefore, a portion of these expenses is likely to have already been paid by the business at the time of application. As support for these expenses, the government will be requesting that electronic copies of receipts, invoices and agreements be uploaded as part of the application.
We also understand that the applications under the non-deferrable expenses stream are expected to be available through participating financial institutions as early as June 19, 2020 and the expected processing time is 10-15 business days from the time all the required documentation is submitted.
For more details on the CEBA loan program click here.
We will continue to provide updates as they come available. If you have any questions about these matters, please contact us.
To review any of our previous updates on COVID-19 please see our website.
This summary deals proposed matters that are complex and may not apply to particular facts and circumstances. As well, the material and the references contained therein reflect laws and practices which are subject to change. For these reasons, this material should not be relied upon as a substitute for specialized professional advice in connection with any particular matter.
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