COVID-19 Clarity for Business Owners

The Federal government has announced a number of measures to financially help individuals and small business through the COVID-19 crisis. For small businesses and professionals, the three main packages are:

• The Canada Emergency Wage Subsidy (CEWS)
• The Canada Emergency Response Benefit (CERB)
• The Canada Emergency Business Account (CEBA

CANADA EMERGENCY WAGE SUBSIDY (CEWS)

The subsidy will provide employers, which includes sole-proprietorships, taxable corporations and partnerships, with up to 75% of the amount of remuneration paid to employees to a maximum benefit of $847/week (equivalent salary of $58,700 per year). The eligibility period is any remuneration paid between March 15 and June 6. Eligibility is based on a reduction in earnings of at least 30%. This will be determined by comparing earnings with the same time period as last year; specifically:

• For remuneration paid between March 15 & April 11, compare March 2020 earnings to March 2019 earnings.
• For April 12 to May 9, compare April 2020 to April 2019
• For May 10 to June 6, compare May 2020 to May 2019

For employers established after February 2019, eligibility will be determined by comparing monthly revenues to a reasonable benchmark. The subsidy is considered taxable revenue but is not included when calculating the 30% reduction. Owners with earned income (T4 or self-employment income) are eligible for the subsidy. The subsidy also applies to new employees.

The amount of subsidy received depends on the situation. For employees hired before March 15, the subsidy will cover the greater of 75% of remuneration paid, or the lesser of:

• 75% of the pre-crisis weekly remuneration paid; or
• Current weekly remuneration paid.

Employers are expected to make best efforts to pay the remaining 25% of employee’s salaries, but if they can’t afford the remaining 25%, they will still receive the subsidy. You can apply for the subsidy either through the CRA’s My Business Account portal or a new online portal that is yet to become available.

Since employees cannot be benefactors of the CEWS and CERB at the same time, receipt of the CEWS for an employee’s remuneration will eliminate their eligibility for the CERB because they will be in receipt of employment income; and if the employee is receiving CERB, CEWS will not be eligible on any remuneration they receive within the four-week period that their CERB applies to.

CEWS has not yet been enacted by legislation. Further, there are a number of details still requiring clarification, such as the “stiff and severe” penalties for employers that do not use the subsidy as intended or obtain the subsidy inappropriately. Finally, the subsidy is not expected to be available for six weeks or more.

At this time, we are recommending ensuring you have a My Business Account setup with CRA and are part of CRA’s direct deposit pay system to take advantage of CEWS when it is launched.

As the benefit through CEWS equates to $3,670/month, we do not recommend that individuals forego salary payments in order to receive the Canada Emergency Response Benefit (CERB) which would provide $2,000/month for eligible applicants.

Due to the lack of details regarding the program and the time frame to implement it, we advise caution hiring back employees at this time if you have been forced to furlough them.

CANADA EMERGENCY RESPONSE BENEFIT (CERB)

Further to our March 25 newsletter, CERB provides $500/week for up to 16 weeks to workers:

• Residing in Canada, who are at least 15 years old;
• Who have stopped working because of COVID-19 and have not voluntarily quit their job;
• Who had income of at least $5,000 in 2019 or in the 12 months prior to the date of their application; and
• Who are or expect to be without employment or self-employment income for at least 14 consecutive days in the initial four-week period. For subsequent benefit periods, they expect to have no employment income.

CERB applies to anyone with T4 or self-employment income regardless if they are eligible for EI; however, the income of at least $5,000 must be from a combination of income from employment (T4), self-employment, or maternity and parental benefits.

If you have not applied for EI, you can apply for CERB starting April 6 either through CRA’s My Account portal for individuals or by phone (1-800-959-2019). If phoning, you will need to verify your identity by confirming your social insurance number (SIN) and postal code. Applications are receivable from 6 A.M to 3 A.M. Eastern time seven days a week, but are initially staggered according to your birth month:

The first CERB payment should be within 3 days of application if receiving payment by direct deposit, and within 10 days of application if receiving payment by cheque. The payment will be a lump sum of $2,000 covering a 4-week period, and payments are retroactive to March 15. You must reapply for each additional 4-week period you are without employment. The benefit is taxable, but there will not be withholding tax on the payments. CERB is available until October 3, 2020, and the last day to apply for the benefit is December 2, 2020.

CANADA EMERGENCY BUSINESS ACCOUNT (CEBA)

CEBA provides up to $40,000 in government-guaranteed loans for businesses to help pay operating expenses, including payroll. Until December 31st, the $40,000 amount will be funded as a revolving LOC. After the end of the year, the balance will be converted to a 5-year term loan. No interest applies until January 1, 2023, at which point interest accrues on the balance at 5%. If you pay 75% of the balance of the term of the loan by December 31, 2022, the remaining balance will be forgiven (e.g. $10,000 will be forgiven if you utilize the entire $40,000 available).

Application for the loan will be through the banks. The banks have indicated they will hopefully be able to accept online enrolments starting the week of April 6. To be eligible:

• You must be a registered and operational business on or before March 1, 2020.
• Your payroll expense for 2019 must have been between $50,000 and $1 million. To confirm this, you will be required to provide the following information:
  • Your employer account number, as reported at the top of your 2019 T4 Summary of Remuneration Paid.
  • Your employment income reported in Box 14 of your 2019 T4 Summary of Remuneration Paid.
  • A copy of your 2019 T4 Summary of Remuneration, if requested.

You must agree to use funds to pay for operating costs that cannot be deferred, such as, payroll, rent, utilities, insurance, debt payments, and property tax. CEBA may be a consideration for bridging the payroll gap to when the CEWS benefit becomes available, or for paying down interest-bearing business debt.

WORKING WITH TPC FINANCIAL GROUP

During this time of insecurity and unknown, we strongly encourage all TPC Financial clients to reach out to their advisor to determine how these changes have impacted their specific situation. This is a difficult time, and having access to professional advice concerning your personal and business needs should help to provide clarity on what options are available.

We encourage all recipients of this newsletter to share with friends, family, and colleagues that may benefit from this information. We have also committed to providing extended consultations to any member of the public who has questions regarding their finances. This, of course, would be 100% complementary, as we strongly believe all Canadians should have access to high-level planning during difficult times.