In response to the COVID-19 pandemic, the federal government and several provincial governments have introduced a variety of tax‑related measures to support owner‑managed businesses and individuals. These measures are intended to help taxpayers weather the storm by providing options to preserve cashflow, prevent layoffs and provide timely access to income support. It is difficult to remain up to date on these measures, given the rapidly evolving situation.
This article summarizes some of the more significant federal and provincial tax relief measures announced up to April 20, 2020 for owner-managed businesses and individuals.
Measures available to owner‑managed businesses
Federal tax filing and payment deadline extensions
The filing due date for corporations required to file a T2 corporate income tax return after March 18, 2020 is deferred to June 1, 2020. This extension also applies to other forms related to the T2 filing due date, but excludes Form T661, Scientific Research and Experimental Development (SR&ED), Form T2 Schedule 31, Investment Tax Credit – Corporations, and related forms, receipts, documents or prescribed information related to these two forms.
Similarly, the filing due date for other administrative tax actions1 (such as forms, elections, designations and responses to information requests) required under the federal Income Tax Act (the Act) that are due after March 18, 2020 is also deferred to June 1, 2020. This deferral also applies to Form T1134, Information Return Relating to Controlled and Not-Controlled Foreign Affiliates.
The due dates for Part I income tax balances and instalment payments owing by a corporation on or after March 18, 2020 and before September 1, 2020 are deferred to September 1, 2020. The deferral also applies to the provincial component of the amounts collected by the Canada Revenue Agency (CRA) on behalf of an agreeing province. These deferred payments will not be subject to interest or penalties. Balances owing under other parts of the Act, such as Part IV tax, Part XIII withholding tax and source deductions, are currently not covered by this extension.
The payment of GST/HST remittances may also be deferred until June 30, 2020. This extension applies to:
- Monthly filers’ remittances of amounts collected for the February, March and April 2020 reporting periods
- Quarterly filers’ remittances of amounts collected for the January 1, 2020 through March 31, 2020 reporting period
- Annual filers’ remittances of amounts collected and owing for their previous fiscal year, as well as instalments in respect of their current fiscal year, that are due in March, April or May 2020
While the filing deadline for GST/HST returns is unchanged, the CRA has stated that it will not impose penalties where, as a result of the difficult circumstances faced by businesses, a return is filed late, provided that it is filed by June 30, 2020.
Canada Emergency Wage Subsidy
At an estimated cost of $73 billion, the Canada Emergency Wage Subsidy (CEWS) is a key measure in the federal government’s economic response plan.2 This program is intended to assist employers in retaining employees and rehiring employees who have been laid off due to COVID-19. Most employers are eligible for the CEWS, including nonprofit organizations, registered charities and partnerships consisting of eligible employers. Public sector entities are not eligible. The eligibility requirements and restrictions for the CEWS can be complex to apply depending on the employer’s particular circumstances.
Generally, the CEWS provides a subsidy of 75% of eligible employee remuneration paid by eligible employers who suffer a drop of at least 15% of their qualifying revenue in March 2020, and a drop of at least 30% in April 2020 and May 2020. An employer’s qualifying revenue is generally the employer’s revenue arising in the course of its ordinary activities in Canada and earned from arm’s-length sources. Special rules apply to entities that earn all or substantially all of their revenue from non-arm’s-length sources.
The CEWS is paid according to three claim periods over a 12-week period:
- March 15 to April 11
- April 12 to May 9
- May 10 to June 6
Thus, the employer must pay the eligible employees and remit the applicable payroll withholdings, and then apply for the subsidy.
The CEWS is subject to a maximum benefit of $847 per week for each eligible employee (applying at a rate of 75% on the first $58,700 of eligible remuneration per employee) with no maximum subsidy amount for eligible employers. Employers accessing the program are expected to use best efforts to top up salaries to 100% of the maximum wage covered.
The CEWS is not available in respect of an employee who has been without remuneration for more than 14 consecutive days in the relevant claim period.3 In effect, this may mean that the CEWS is not available where an employee was laid off in a prior period and then rehired 14 or more days after the beginning of the qualifying claim period.
A representative from the Office of the Minister of Finance has confirmed, however, that an employer can retroactively rehire its employees and benefit from the wage subsidy. They also commented that in this situation employees who have received the Canada Emergency Response Benefit (CERB) would be expected to repay it. It remains to be seen, though, how this will be handled administratively.
Eligible remuneration includes salary, wages and other remuneration for which an employer is generally required to withhold income tax, including commissions, but does not include retiring allowances or stock option benefits.
The CEWS is only available to non-arm’s-length employees who were employed prior to March 15, 2020 and is limited to the lesser of eligible remuneration paid in any pay period between March 15 and June 6, 2020 (subject to the $847 weekly maximum), or 75% of the employee’s baseline (i.e., pre-crisis) weekly remuneration.4
In determining whether they qualify for the benefit in a particular claim period, employers can use either an average of their qualifying revenue earned in January and February 2020 or their qualifying revenue earned in the same month of the previous year. The method selected to compute qualifying revenue must remain unchanged throughout all the claim periods.
Employers may calculate their revenues using either the accrual or cash method; however, if the employer elects to use the cash method, that method must be used for all claim periods. Specific rules apply for corporate groups, non-arm’s-length entities, joint ventures, nonprofit organizations and registered charities.
The CEWS also includes a 100% refund for certain employer-paid contributions to Employment Insurance (EI), the Canada Pension Plan (CPP), the Québec Pension Plan (QPP) and the Québec Parental Insurance Plan (QPIP) for each week an employee is on leave with pay. An employee is considered to be on leave with pay if they receive remuneration from the employer for the week but do not perform any work. This refund does not apply to employees who are only on leave for part of a week. Unlike the $847 weekly maximum applicable to employee remuneration, there is no overall limit to the refund an eligible employer may claim.
Eligible employers must file an application in prescribed form by September 30, 2020 through the CRA’s My Business Account portal.
Employers are required to include amounts received under the CEWS in income in the taxation year it is received and must repay amounts that were paid under the program that do not meet eligibility requirements. The government warns that abuse of the CEWS program can result in significant penalties, plus full repayment, and up to five years’ imprisonment.
Anti-abuse rules also ensure the subsidy is not inappropriately obtained and employees are paid the amounts owed to them. Given the magnitude of the government expenditure to implement this measure, audit activity should be expected. Employers should ensure they carefully review the eligibility criteria and prepare clear documentation to substantiate their application.
Organizations that do not qualify for the CEWS may qualify for the 10% Temporary Wage Subsidy (see below). Employers that are eligible for both the CEWS and the temporary 10% wage subsidy for the same period will have their CEWS claim reduced by the amount received under the wage subsidy in that period.
For more information and insight on this program, see EY Tax Alert 2020-28, Canada Emergency Wage Subsidy – Update, EY Tax Alert 2020-29, Canada Emergency Wage Subsidy – further update, and EY Tax Alert 2020-30, Canada Emergency Wage Subsidy legislation receives Royal Assent.
Temporary Wage Subsidy
The federal Temporary Wage Subsidy program allows eligible employers to reduce payroll remittances of federal, provincial (other than Québec), or territorial income tax by 10% of the amount of eligible remuneration paid to employees between March 18, 2020 and June 19, 2020.5 Unlike the CEWS, this program targets smaller employers. As such, the temporary subsidy is subject to a maximum of $1,375 per employee and $25,000 per employer, whichever is lower. This measure applies to income tax withholdings only and does not apply to other source deductions, such as CPP contributions and EI premiums.
Eligible employers include individuals other than trusts (e.g., sole proprietorships), Canadian-controlled private corporations (CCPCs) that qualify for the small business deduction,6 certain partnerships7, nonprofit organizations and registered charities. Eligible remuneration is defined as salary, wages or other remuneration paid to an eligible employee during the eligible period. Associated CCPCs are not required to share the maximum subsidy of $25,000 per employer.
The subsidy calculation, which is done by the employer, is based on the total number of eligible employees employed at any time during the three-month eligibility period. Employers do not need to apply for this subsidy and can reduce their payroll remittance by the amount of the subsidy beginning with the first remittance period that includes remuneration paid from March 18, 2020 to June 19, 2020.
Future income tax remittances can also be reduced for remuneration paid before June 20, 2020, including remittances made after June 20, 2020 if the income taxes deducted in the eligible period do not offset the value of the subsidy. Employers can also request that the subsidy be paid to them at the end of the year or transferred to the next year’s remittance if the subsidy is not applied in reduction of the payroll remittances during the year.
To support the subsidy calculation, employers are required to retain certain information, including the total remuneration paid between March 18, 2020 and June 19, 2020, the federal, provincial or territorial income tax deducted from that remuneration, and the number of employees paid in that period. The government notes that it is currently updating reporting requirements and will release further information on how to report the subsidy in the near future.
Employers are required to include amounts received under this subsidy program in income in the taxation year it is received.
For more information on this program, refer to EY Tax Alert 2020-24, Federal Wage Subsidy Program.
For most businesses, the CRA is temporarily suspending audit interaction with taxpayers and their representatives. The governments of Alberta, Saskatchewan, Ontario and Québec have also announced similar measures.
Provincial tax filing and payment deadline extensions
Since Alberta and Québec are not agreeing provinces with respect to corporate income tax, their respective governments have announced their own measures.
Alberta’s filing due date for any corporate income tax returns (AT1) due after March 18, 2020 and before June 1, 2020 is deferred to June 1, 2020. No late-filing penalties will apply during the deferral period. In addition, the balance due date for Alberta corporate income tax balances due on or after March 18, 2020 and instalment payments coming due between March 18, 2020 and August 31, 2020 is deferred to August 31, 2020. No interest or penalties will apply during the deferral period.
Québec’s filing due date for corporate income tax returns (CO-17) due from March 17, 2020 to May 31, 2020 is deferred to June 1, 2020. The corporate tax balance due date for any amount due between March 17, 2020 and August 31, 2020 is deferred to September 1, 2020.8 Similarly, the due date for monthly and quarterly tax instalment payments due between March 17, 2020 and August 31, 2020 is deferred to September 1, 2020.9 The filing due date for other Québec administrative tax actions (such as the filing of information returns, forms, elections10, designations and responses to information requests) that are due after March 16, 2020 is also deferred to June 1, 2020.
Certain provinces — including Manitoba, Québec and Saskatchewan — have also announced deferrals with respect to provincial sales tax. Various other provincially administered tax programs also offer deferred filing and remittance due dates. For more information, see EY Tax Alert 2020-22, BC relief plan, EY Tax Alert 2020-23, Ontario Action Plan, and EY Tax Alert 2020-18, Quebec announces economic response measures.
Measures available to individuals
Federal tax filing and payment deadline extensions
Individuals normally required to file their 2019 income tax return by April 30, 2020 now have until June 1, 2020 to file their returns. This deadline also applies to Form T1135, Foreign Income Verification Statement, and other forms that must be filed by an individual’s filing due date, but excludes Form T661, Scientific Research and Experimental Development (SR&ED), Form T2038(IND), Investment Tax Credit (Individuals), and related forms, receipts, documents or prescribed information related to these two forms.
The June 15, 2020 income tax return filing due date applicable to self-employed individuals and their cohabiting spouse or common-law partner remains unchanged. Similar to corporations, the filing due date for other administrative tax actions (such as forms, elections, designations and responses to information requests) required under the Act that are due after March 18, 2020 is also deferred to June 1, 2020.
The due date for individuals, including self-employed individuals, with a Part I tax balance owing for the 2019 taxation year has been extended to September 1, 2020. This extension also applies to individuals who have a June 15, 2020 instalment to pay. Balances owing under other parts of the Act are currently excluded from this extension. No interest accrues on deferred amounts between March 18, 2020 and August 31, 2020.
Canada Emergency Response Benefit
Although the federal Canada Emergency Response Benefit (CERB) is not a tax relief measure, it is one of the most significant support measures introduced to date.
The CERB provides eligible employees and self-employed individuals who suffer income loss as a result of ceasing work (or decreasing work hours) for reasons related to COVID-19 a benefit payment of $2,000 per month ($500 per week) for up to 16 weeks. Payments are made every four weeks and cover the period beginning March 15, 2020 and ending October 3, 2020. Individuals can apply for any four-week period and must re-apply for subsequent periods if their situation continues.
Eligible workers also include:
- Individuals who have stopped working because they are sick, quarantined, are caring for someone who is sick with COVID-19 or are working parents who must look after children who are sick or at home due to school and daycare closures
- Seasonal workers who have exhausted their EI regular benefits but, because of COVID-19 ramifications, cannot resume their regular seasonal work
- Individuals who recently exhausted their EI regular benefits but cannot find a job because of the pandemic
Individuals must reside in Canada, be at least 15 years of age, and have not voluntarily quit their job. Individuals must also have had income of at least $5,000 in 2019 (or in the 12 months prior to their application date) and expect to earn no more than $1,000 (before taxes) in employment or self-employment income for 14 or more consecutive days within their first four-week benefit period.
For subsequent claims, individuals cannot earn more than $1,000 (before taxes) in employment or self-employment income for the four-week benefit period. The minimum $5,000 income requirement must be from employment, self-employment, pregnancy or parental benefits under the Employment Insurance Act or similar provincial benefits, or any combination thereof. While the individual must reside in Canada, the income does not have to be earned in Canada.
Individuals who have stopped working because of COVID-19 are encouraged to apply for the CERB regardless of whether or not they are eligible for EI.
Individuals already receiving EI regular or sickness benefits will continue to receive those benefits and should not apply for the CERB. Individuals who become eligible for EI regular or sickness benefits on March 15, 2020 or later will have their claim automatically processed through the CERB.
Individuals can apply online with the CRA using CRA My Account (at https://www.canada.ca/en/services/benefits/ei/cerb-application.html) or by calling +1 800 959 2019, and benefits will start within 3 to 10 days of submitting an application.
Amounts received under the CERB are taxable and must be reported for the 2020 taxation year, although tax will not be deducted at source. An information slip will be available in My Account under Tax Information Slips.
Individuals may be required to provide additional information to verify their CERB eligibility at a later date.
For more information on this program, refer to EY Tax Alert 2020-26, CERB and Canada Work-Sharing Program update, and EY Tax Alert 2020-31, Canada updates the CERB.
Registered retirement income fund minimum amounts
To help seniors weather the economic downturn and its impact on retirement savings, the federal government has reduced the required minimum withdrawals from registered retirement income funds (RRIFs) by 25% for 2020.11 Thus, this measure will reduce the amount of RRIF assets that an individual may need to liquidate to meet the minimum withdrawal requirement. Similar measures have also been introduced for 2020 for individuals receiving variable benefit payments under a defined contribution registered pension plan or a pooled registered pension plan.
Individuals who have already withdrawn more than the reduced 2020 minimum amount are not permitted to recontribute an amount up to the 25% reduction.
In line with the federal measure, the required minimum withdrawal from a RRIF is also reduced by 25% for 2020 for Québec tax purposes.
Québec tax filing and payment deadline extensions
Since Québec is not an agreeing province with respect to personal income tax, the Québec Government has announced the following deferrals with respect to income tax compliance due dates:
- Postponement of the 2019 personal income tax return filing due date from April 30, 2020 to June 1, 2020.12 The deadline for self-employed individuals and their cohabiting spouse or common-law partner remains unchanged (i.e., June 15, 2020).
- Postponement of the April 30, 2020 tax balance due date to September 1, 2020.
- Postponement of the April 30, 2020 payment deadline for QPP, QPIP, Health Services Fund and Québec prescription drug insurance plan contributions to September 1, 2020.
- Suspension of any tax instalment payment due on June 15, 2020 until September 1, 2020. The due date for the two remaining 2020 instalment payments (September 15, 2020 and December 15, 2020) and the rules for determining instalments remain unchanged.
- Deferral to June 1, 2020 of all administrative tax actions (other than tax return filings already deferred to a specific date, payments of taxes and contributions, and source deductions) due after March 16, 2020 and before June 1, 2020.
As the fallout from the COVID-19 pandemic continues to evolve, governments will likely continue to adapt their economic responses. To optimize the benefits available, it’s important for owner-managed businesses and individuals to stay up to date with changes and new programs.
By combining the tax relief provided with other financial support measures, such as low-interest or interest-free loans and the temporary deferrals of other fees and levies, businesses and individuals can begin to plan for the opportunities that may surface in a post-crisis economy.
Consult with your EY advisor to learn more about optimizing the relief available.