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Updated December 13, 2020

 

Canada Emergency Business Account (CEBA)

The original program provided $40,000 of emergency funding to assist business impacted by COVID-19. 25% of this loan is forgivable if repaid before December 31, 2022. If your financial institution provided this loan via a line of credit, please ensure that $40,000 has been deposited into your business bank account before December 31, 2020 as the forgivable amount is based on the amount of the line of credit actually used.

This program has now been expanded to provide an additional $20,000 (ie. up to $60,000), with an additional $10,000 being forgivable if repaid before December 31, 2022.

The conditions to qualify for the loan are as follows:

  • the business is facing ongoing financial hardship (including, for example, a continued decline in revenue or cash reserves, or an increase in operating costs) as a result of the COVID-19 pandemic;
  • it intends to continue to operate its business or to resume operations;
  • in response to the COVID-19 pandemic it has made all reasonable efforts to reduce its costs and to otherwise adapt its business to improve its viability; and
  • the loan will be used to pay Eligible Non-Deferrable Expenses and may not be used to repay any existing indebtedness, pay dividends, or increase management or related party compensation.

You apply for this loan via your financial institution.

Links:

Government of Canada: https://ceba-cuec.ca/

CFIB: https://www.cfib-fcei.ca/en/canada-emergency-business-account-ceba#faq

Canada Emergency Rent Subsidy (CERS)

The government has now released details on its new rent assistance program. The initial program runs from September 27, 2020 to December 19, 2020 (3 periods of 28 days each).

You are eligible if:
1)     You rent or own a commercial property, and
2)     You have seen a drop in revenue

The subsidy is based on the % revenue decline and ranges from 1% to 65% of eligible expenses. There is an additional subsidy of up to 25% if your business is closed as a result of a public health order.

Payments will be made directly to renters and property owners. Application for the subsidy is made via CRA’s My Business Account (see link under “Other Services”). We can also apply for the subsidy on your behalf.

https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-rent-subsidy.html

Examples:

  1. Your monthly rent is $3,000 and your October 2020 revenue is 50% lower than last year.
    • The subsidy for the first 4 week period would be $1,100.
  2. Your monthly rent is $3,000 and your October 2020 revenue is 20% lower than last year.
    • The subsidy for the first 4 week period would be $440.
  3. Your monthly rent is $3,000 and your October 2020 revenue is 50% lower than last year. You were closed for 14 days due a public health order.
    • The subsidy for the first 4 week period would be $1,450.

 

Canada Emergency Wage Subsidy (CEWS)

This program has been extended to June 2021 but no additional details have been provided. The original program ran from March to August 2020 and provided a  subsidy equal to 75% of wages paid if revenue was lower by 30% or more. The second program runs from September to December 2020 and provides a subsidy of 0.8 multiplied by the percentage revenue drop. For example, if revenue declined 20%, the subsidy would be 16% (0.8 x 20% decline). A top-up subsidy is available if revenue has declined more than 50%.

Program changes:
https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-what-changes.html

Frequently Asked Questions:
https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-frequently-asked-questions.html

Canada Emergency Commercial Rent Assistance (CECRA)

This program ended in September 2020. It provided for 75% rent relief if revenue was down at least 70%. The application was made by the commercial landlord.

https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business

10% Temporary Wage Subsidy

This program ended in June 2020. It provided for a wage subsidy for the period March 18th to June 19th equal to 10% of the gross payroll.
The maximum for the entire period was $1,375 times the number of employees or $25,000, whichever was less.
Any amounts received under this subsidy reduced the claim. This subsidy was claimed by reducing payroll source deduction payments to CRA.

Additional Information:
https://www.canada.ca/en/revenue-agency/campaigns/covid-19-update/frequently-asked-questions-wage-subsidy-small-businesses.html

 

How to Register for CRA’s My Business Account

https://www.canada.ca/en/revenue-agency/news/cra-multimedia-library/businesses-video-gallery/register-mybusiness-account.html

If you sign-in via a partner, use your personal, not business, bank card.

Salary vs Dividends

Companies have the option of paying their shareholders a salary, a dividend or a combination of both.
 
The shareholder pays all the income tax on a salary. If a dividend is paid, some of the tax is paid by the company and some by the shareholder. In theory, the total tax paid under either option is supposed to be the same. In practice, however, dividends sometimes have a lower tax rate.
 
If a salary is paid, source deductions (CPP & income tax) must be remitted to CRA monthly. As there are significant penalties if a payment is late, we recommend using a payroll service.
 
A salary increases your RRSP room.
A salary entitles you to future Canada Pension Plan (CPP) benefits (at a cost up to $6,400 per year).
A salary reduces the company’s income tax instalments, as a salary is an expense deductible by the company.
A salary reduces personal income tax instalments, as tax deductions are remitted monthly.

 

Corporate Tax (January 2019)

Here is a summary of three major changes to the income tax act that will affect some corporations and their shareholders.
 
1) If your company pays a dividend to a family member who does not work more than 20 hours per week in the business, the dividend will be taxed at the top personal tax rate.
 
2) If your company earns more than $50,000 in investment income (interest, dividends, capital gains) AND your company (or a related company) sells products or provides services, the corporate tax rate on the product and service income will increase by up to 13% (from 13.5% to 26.5%)
 
3) If your operating company pays dividends to your holding company, the dividend may be treated as a capital gain subject to 25% tax.

CRA Audits

When CRA audits a business, they have the right to request business and personal bank statements going back several years.
They will also disallow expenses if the supporting documentation is not provided. 
 
Here is a list of what you need to keep. We recommend saving these documents on your computer in PDF format.
  • Business bank statements
  • Personal bank statements
  • Credit card statements and supporting receipts
  • Supporting documents for expenses (supplier invoices / emails)
  • Investment statements
  • Payroll registers

Medical Expenses

You may be able to reduce your medical costs by setting up a medical benefits plan. If you meet the conditions below, your company can reimburse you for 100% of your medical expenses (including drugs, dental, glasses, therapy). This process turns a personal medical expense into a company expense. You pay the expense and submit a claim online. The funds are withdrawn from the company and deposited into your personal bank account.

Conditions:

  • You own a corporation
  • You receive a salary from your corporation
  • Your family medical expenses are usually over $1,000 per year
  • You or your spouse do not belong to a group plan
  • You have no employees (except family members)

Olympia Benefits Inc has set up a plan that is popular with small business owners.

Here is a link to additional information: http://www.olympiabenefits.com/health-and-dental-plans-for-small-business

We recommend the Olympia HSA “Plus” plan.