Government of Canada Stimulus Announcement – Summary March 27, 2020

Government of Canada Stimulus Announcement

(OTTAWA – March 27, 2020)

Things are moving quickly. A couple of hours after we set out the likely path that the Federal government would take, they laid out that path for all of us.

It’s important to note that the full details of this package are not yet available and it is unclear if additional legislation is required at this time.

This is a very significant package that will backstop small-businesses in the immediate short-term and is worth $95 billion in stimulus and deferrals.

What we thought we would get What we got
Increase of the existing wage subsidy.

Increase of the wage subsidy percentage to 75% from the existing rate of 10% for qualifying businesses, for up to three months, retroactive to March 15th.

There are no details available yet on whether there is a cap per employee or total cap per employer, similar to the existing 10% wage subsidy. In addition, it is unclear whether the eligible employers in this case are the same as were defined in previous legislation.

In practice, the 10% wage subsidy program functioned by permitting eligible employers to withhold payroll income tax deductions that normally would have been provided to the Government of Canada. This provides for immediate access to the benefit. It remains unclear whether this would be the same process.

Federally guaranteed loans for small business

$40,000 in government guaranteed loans to small businesses and not-for-profits to help cover operating costs during a period where revenues have declined due to COVID-19. These will be interest-free.

This program will provide $25 billion of support to small business, and will be provided by financial institutions in partnership with EDC. These loans will be federally guaranteed, which will shield financial institutions from credit risk.

To qualify for these loans, organizations will have to demonstrate that they paid between $50,000 and $1 million in total payroll in 2019.

If loans are paid off by December 31, 2022, 25% of the loan will be forgiven.

To access these loans, small business and not-for-profits should be in contact with their financial institutions.

Federally guaranteed loans for SMEs

$40 billion dollars available to the EDC and BDC to aid SMEs with operational cash flow requirements of small to medium-sized enterprises.

This will allow for EDC to guarantee new operating credit and cash flow term loans that financial institutions extend to SMEs, up to $6.25 million.
This will provide up to $20 billion of support. Material on the Department of Finance website indicates that this will apply to domestic companies and the export sector.

A new co-lending program for SMEs is also created under the BDC to provide incremental credit amounts up to $6.25 million. BDC’s portion would be up to $5 million maximum per loan. This will provide $20 billion of support.

Financial institutions would be the interface with clients for both programs.

The definition of eligible businesses was not provided at the time of writing.   

Improvements to cash flow

Upcoming GST/HST payments are being deferred to June 30, 2020.

Upcoming customs duty payments are being deferred to June 30, 2020

This will provide approximately $30 billion in liquidity to businesses and reduce overall administrative burden during this timeframe.

For GST, the Minister of Revenue will extend until June 30, 2020 the time that:

  • Monthly filers have to remit amounts collected for the February, March and April 2020 reporting periods;
  • Quarterly filers have to remit amounts collected for the January 1, 2020 through March 31, 2020 reporting period; and
  • Annual filers, whose GST/HST return or instalment are due in March, April or May 2020, have to remit amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year.

Under the Customs Act, for which the Minister of Public Safety and Emergency Preparedness is responsible and which is administered by the Canada Border Services Agency (CBSA), governs the levying and payment of customs duties in Canada.
Typically, payments owing for customs duties and the GST on imports are due before the first day of the month following the month in which the Statements of Accounts are issued.
Section 33.7(1) of the Customs Act allows the Minister of Public Safety and Emergency Preparedness or an officer designated by the President of the CBSA to extend, in writing, the timeline for accounting or payment of amounts owing.
Under this authority, payment deadlines for statements of accounts for March, April, and May are being deferred to June 30, 2020.

Direct industry assistance leveraging the Canada Account or other mechanisms

Minister Morneau announced that he continues to work with airlines and the energy sector on a potential assistance program.

In addition, the Government of Canada also announced a series of administrative tax measures to provide administrative relief to taxpayers. These are described in further detail on the Department of Finance website at fin.gc.ca.

Other stimulus

The Bank of Canada reduced the overnight rate to 0.25%, which is effectively the zero-lower bound. The Bank of Canada governor has said that they will not lower that rate further. This will decrease borrowing costs for business with floating rates of interest on debt.

The Bank of Canada will also begin to acquire Government of Canada debt in the secondary market. In other words, it will buy bonds from existing holders of those securities. That will increase demand for Government debt, which should increase price and lower yields. Government of Canada debt acts as the benchmark for the risk-free rate of borrowing. This is effectively quantitative easing, which is used to provide further monetary easing in a zero-lower bound environment.

Conclusion

This is huge shot in the arm for business. More details will follow in the coming days, at which point we will update on material changes, in particular the wage subsidy.

For any assistance, please contact your Welch LLP representative.

Author

Chris Meyers, CPA, CA
Partner
cmeyers@welchllp.com
613-236-9191 #534