Coronavirus (Covid-19) and Taxes – What you need to know

Covid-19 and taxes what you need to know

Here is a summary of some of the relevant federal government action taken so far. Right now, the challenge is that the bulk of these proposals have yet to receive royal assent or have any supporting legislation. This summary is based on the March 18/20 release by the Department of Finance.

Deadlines

Canada Revenue Agency will defer the personal tax filing due date for the 2019 tax returns of individuals to June 1, 2020, and for trusts that have a taxation year ending on December 31, 2019 to May 1, 2020. But note there is no mention of any extension related to the filing of corporate income tax returns or partnership returns (although Quebec has since announced an extension to the partnership return due date to May 1, 2020).

Furthermore, the CRA Charities Directorate has announced it is extending the filing deadline to December 31, 2020, for all charities with a Form T3010, Registered Charity Information Return due between March 18, 2020 and December 31, 2020.

Payment Deferrals

All taxpayers will be allowed to defer until after August 31, 2020 the payment of any income tax amounts that became owing on or after March 18, 2020 and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period. 

For example:

Let’s say Company A qualifies as a Canadian Controlled Private Corporation (CCPC), has claimed the Small Business Deduction in 2019 and the taxable income of the Company A’s associated group did not exceed $500,000 in the prior year. If Company A has a December 31, 2019 fiscal year end, the tax balance (less any required instalments) would normally be due on March 31, 2020.  This balance would now only need to be paid by September 1, 2020 and no interest or penalties would accumulate during the period of March 31, 2020 through August 31, 2020.

However, let’s say Company B is a CCPC that does not meet the above requirements or is not a CCPC, and has a December 31, 2019 year end. The tax balance (less any required instalments) would normally be due on February 29, 2020. This balance, if it hasn’t been paid yet would still be subject to applicable penalties and interest during the period between March 18, 2020 and August 31, 2020 if it remains unpaid.

Furthermore, if either of the above-mentioned companies has an instalment payment requirement for the 2020 fiscal year, the March – August instalment payments can be deferred without triggering instalment interest. The same holds true for the June 15th personal tax instalment requirement.

Note there has been no mention by the government of the ability to defer GST/HST payments or payroll withholding payments (other than the wage subsidy referred to below). This makes sense since GST/HST and payroll withholdings are trust monies.

Wage subsidy for employers

On March 18, 2020, in an effort to mitigate the effects of the COVID-19 outbreak on our economy, the government proposed a wage subsidy for a period of three months to help employers and help prevent lay-offs due to revenue losses. Enabling legislation has now received Royal Assent. As mentioned in the Backgrounder issued by the Department of Finance on March 18, 2020, “the subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, partnerships, individuals who are employers, as well as non-profit organizations and charities. Employers would already need to have a payroll remittance account registered with the Minister on or before March 18, 2020. The statutory definition of eligible employers is provided in the COVID-19 Emergency Response Act.

We have since had some clarification from CRA in respect of the administration of the subsidy which has answered many of our previous questions. Here are some additional details that have been provided by CRA:

  • CRA has provided additional information with respect to what is meant by the term “eligible for the small business deduction”.  According to CRA, only businesses that are Canadian controlled private corporations (CCPC) whose taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million would qualify for the wage subsidy.
  • We have also had some clarification with respect to the tax status of the subsidy. As we suspected it would be, it is indeed taxable.
  • CRA has indicated that associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
  • The subsidy is available immediately in respect of remuneration paid between March 18, 2020 and June 20, 2020. For example, regular remitters, can reduce their remittance that is due to the CRA on April 15, 2020.
  • Note that the subsidy cannot be used to reduce CPP or EI remittances. It is only meant to reduce remittances of income tax withheld from employees.
  • If eligible employers choose not to reduce their payroll remittances during the year, they can ask for the subsidy to be paid to them at the end of the year or transferred to next year’s remittance. Note though that only the remuneration paid between March 18, 2020 and June 20, 2020 is eligible for the subsidy.

There is no apparent restriction in respect of non-arm’s length employees.

Here are some numerical examples provided by CRA:

Example 1

If you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000

Example 2

If you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050


Example 3

If you calculated a subsidy of $2,050, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.

Example 4

If you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.

More information about the subsidy and its administration can be found here:

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

EI related action

  • The government has waived the one-week waiting period for individuals applying for EI sickness benefits. This temporary measure will apply to individuals in imposed quarantine and is in effect as of March 15, 2020. Related to this the government has also waived the requirement to provide a medical certificate when applying for the EI sickness benefits.
  • The government proposes to expand the existing EI Work Sharing Program by extending the agreement period from 38 weeks to 76 weeks and easing eligibility requirements and streamlining the application process. Information regarding the existing program can be found at the following link:

    https://www.canada.ca/en/employment-social-development/services/work-sharing/guide-employee.html

 
Financial support for those who may not qualify for EI

  • The government has proposed an Emergency Care Benefit which would provide a flat payment of up to $900 bi-weekly, for up to 15 weeks. This benefit is meant to provide income support to:
    • Workers, including the self-employed, who are quarantined or sick with COVID-19 but do not qualify for EI sickness benefits.
    • Workers, including the self-employed, who are taking care of a family member who is sick with COVID-19, such as an elderly parent, but do not quality for EI sickness benefits.
    • Parents with children who require care or supervision due to school closures, and are unable to earn employment income, irrespective of whether or not they qualify for EI.


Income support for low income individuals

The government is proposing the following:

  • A one-time supplemental payment which will be administered through the GST credit program. The expectation is that this payment will be made by early May 2020. The average expected payment would be in the range of just under $400 for individuals and just under $600 for couples.
  • To increase the maximum annual Canada Child Benefit payment amount for the 2019-20 benefit year by $300 per child.
  • To provide a fund to support First Nations, Inuit, and Métis Nation communities
  • Place a six-month interest-free moratorium on the repayment of Canada Student Loans for all individuals currently in the process of repaying these loans
  • Reducing required minimum withdrawals from Registered Retirement Income Funds (RRIFs) by 25% for 2020
  • To provide additional support for people experiencing homelessness and shelters supporting women and children fleeing violence

Helping Businesses with Liquidity Issues

The government has announced the introduction of the Business Credit Availability Program (BCAP) in order to help small and medium sized businesses maintain resiliency through the BDC. This is another item that has generated a lot of questions. For now it’s probably best for people with questions to contact their financial institutions. Or, look to see if the BDC program is available. Below is a link to the commentary from BDC.

https://www.bdc.ca/en/pages/special-support.aspx?special-initiative=covid19

CRA Audit Activity

The government has announced that CRA will not contact any small or medium businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. They have also indicated that for the vast majority of businesses, the Canada Revenue Agency will temporarily suspend audit interaction with taxpayers and representatives.

Administrative proposals

Electronic signatures will be accepted in respect of T183 and T183CORP and in respect of any signature requirements mentioned in the Income tax Act.

Quebec

Quebec has announced filing deadline and deferred payment provisions to harmonize with the Federal provisions noted above. However, one key difference is that Quebec also extended the partnership return deadline May 1 (this was not announced by the Feds). Here is a link to the press release.

https://www.revenuquebec.ca/en/press-room/press-releases/details/167313/2020-03-17/

Author

Mona Tessier, CPA, CA
Principal, Indirect Tax Specialist
mtessier@welchllp.com
613-236-9191 #207