Tax updates in Canada in response to COVID-19
TAX ALERT |
Authored by RSM Canada
This article summarizes federal and provincial tax measures amid ongoing COVID-19 concerns. The key updates since RSM’s last COVID-19 Tax Alert on October 2 include the following:
- Bill C-9 which amends the Canada Emergency Wage Subsidy and proposes the Canada Emergency Rent Subsidy;
- Updates to the Canada Emergency Business Account;
- Continuation of the Canada Revenue Agency’s Resumption Plan;
- Audits of CEWS applications; and
- Update to the previously announced international guidance measures.
These and other recent additions are highlighted within this article for easy identification. RSM continues to monitor new developments closely and provides updates as information becomes available, including in the 2020 year-end tax planner.
Table of contents
- Tax filing deadlines and payment dates
- Federal benefits, credits and support payments for individuals and employers
- Canada Revenue Agency (CRA) communications
- Collections, audit, objections and Tax Court appeals
- International income tax: CRA and COVID-19
- Selected provincial updates
TAX FILING DEADLINES AND PAYMENT DATES
A number of tax filing and payment deadlines have been extended due to COVID-19. A table of the current extended deadlines can be found in Appendix A.
FEDERAL BENEFITS, CREDITS AND SUPPORT PAYMENTS FOR INDIVIDUALS AND EMPLOYERS
The principal federal measures to help Canadians manage COVID-19 concerns are summarized below. For a complete list of CRA’s updates please visit the CRA’s official site.
For individuals
1. To support individuals that have lost their income due to the COVID-19 pandemic, the federal government introduced the Canada Emergency Response Benefit (CERB). The CERB provides a qualifying individual with a taxable benefit of $2,000 for each four-week period between March 15 and September 26, 2020. While the CERB has ended, the CRA will continue to accept and process retroactive applications until December 2, 2020.
2. As of September 27, 2020, the government transitioned to a simplified Employment Insurance (EI) program. To help individuals qualify for the EI program, the government has lowered the threshold of required number of insurable hours to qualify for EI to a minimum of 120 hours.
In addition, because the amount of funds a taxpayer could receive under EI is based on their previous amount of insurable hours (in combination with other factors), EI claimants will receive a one-time insurable hours credit of (a) 300 insurable hours for claims for regular benefits (job loss) or (b) 480 insurable hours for claims for special benefits (sickness, maternity/parental, compassionate care). The minimum EI benefits amount will be increased to $500 per week if this is higher than what their benefits would otherwise be or $300 per week for extended parental benefits, less applicable taxes. The maximum an individual can receive is $573 per week.
The federal government set a minimum unemployment rate of 13.1% for the EI program. This means that when individuals begin transitioning off of the CERB back to EI regular benefits at the end of September, those living in EI regions with an unemployment rate lower than 13.1% will have their EI benefits calculated on the basis of the 13.1% rate, while individuals living in regions with a higher unemployment rate will have their benefits calculated using the actual rate for that region. This is important because if the region in Canada has a higher unemployment rate, then this increases the amount eligible to be paid out. The increase to the rate, coupled with the increase in number of insurable hours, means that the amount of EI that will be paid to the individual increases.
3. The government has implemented three new programs to provide targeted support for individuals who are not eligible to receive EI regular benefits. To be eligible for any of the recovery benefits, individuals must have earned at least $5000 (before deductions) in 2019, 2020, or in the 12 months prior to applying. Also, Individuals cannot apply for or receive, for the same period, more than one Recovery Benefit, EI benefits, workers’ compensation benefits, or Québec Parental Insurance Plan benefits. The three programs are as follows:
- The new Canada Recovery Benefit (CRB) provides a taxable benefit of $500 per week for up to 26 weeks to workers who are not eligible for EI. To be eligible for the CRB, individuals must be available and looking for work, and must accept work when it is reasonable to do so.
- The Canada Recovery Sickness Benefit (CRSB) will provide a taxable benefit of $500 per week, for up to two weeks, within the period from September 27, 2020 to September 25, 2021, for workers who are unable to work for at least 50% of the week because they are sick,need to self-isolate due to COVID-19 or have underlying conditions, are undergoing treatments or have contracted other sicknesses that would make them more susceptible to COVID-19.
- The Canada Recovery Caregiver Benefit (CRCB) will provide a taxable benefit of $500 per week for up to 26 weeks, within the period from September 27, 2020 to September 25, 2021, per household to eligible Canadians who are unable to work for at least 50% of the time they otherwise would have because they needed to provide care to children under 12 years or support to other dependents or family members with a disability who are not able to attend their school or usual care facility due to COVID-19.
Update The above-mentioned measures’ application process also contains new elements which the CERB did not have, such as:
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For employers
1. The federal government launched the Canada Emergency Business Account (CEBA) to assist eligible small businesses and non-profit organizations with interest-free loans of up to $40,000. Applications for loans are made directly through banks and credit unions. If the loan is repaid by December 31, 2022, 25% of the loan will be forgiven. If the loan is not repaid by December 31, 2022, the remaining balance will be converted to a three-year term loan at 5% interest. An entity is eligible for the CEBA under the payroll stream if it paid between $20,000 and $1.5 million in employment income in the period January 1 to December 31, 2019, or paid expenses between $40,000 and $1.5 million.
Update On October 26, 2020, the government announced that the eligibility for CEBA has expanded by removing the previous March 1, 2020, condition for having an active business chequing/operating account. CEBA will now be available to businesses that are operating out of a non-business banking account. The government has also announced that the CEBA support can be increased from $40,000 to $60,000. Half of this $20,000 additional financing would be forgivable if repaid by December 31, 2022, resulting in a forgiven amount of $10,000 on the first $40,000, and another $10,000 forgivable loan on the additional $20,000 of financing. In addition, the application deadline for CEBA would be extended to December 31, 2020. The government has not announced when the expanded program will commence but has stated that the expansion will be available to all previously and new eligible CEBA applicants. |
2. The employment insurance work-sharing program provides employment insurance benefits to eligible employees who agree to reduce their normal working hours and share the available work while their employer recovers. This measure is an agreement between eligible employers, eligible employees and the Government of Canada and runs until March 14, 2021.
3. The Business Credit Availability Program (BCAP) is a series of loan programs available to small to large businesses, and consist of the following: (1) Loan guarantee for small and medium-sized enterprises; (2) Co-lending program for small and medium-sized enterprises; (3) BDC’s Mid-Market Financing Program for medium sized businesses; and (4) EDC’s Mid-Market Guarantee and Financing Program for companies who tend to have revenues of between $50 million to $300 million. Currently, the program runs until June 2021.
RSM’s funding guide provides more details on these credit availability programs.
4. The federal government introduced the 10% temporary wage subsidy for employers for the three-month period from March 18 to June 19, 2020. The subsidy covered 10% of eligible remuneration for each eligible period up to a maximum of $1,375 per employee and $25,000 per employer. CRA has released Form PD27, 10% Temporary Wage Subsidy Self-identification Form for Employers. Employers will be required to complete this self-identification form for each of their payroll program accounts and the CRA will use the information on this form to reconcile the subsidy to the employer’s payroll program accounts. There is no deadline to file the PD27 but taxpayers are encouraged to file the PD27 before the end of the calendar year to give enough time to CRA to process the form. If not, taxpayers should file form PD27 before they submit their T4 information return for the tax year.
5. In response to the short-comings of the Temporary Wage Subsidy, the federal government introduced the Canada Emergency Wage Subsidy (CEWS) for employers. For periods 1 through 4 (March 15 to July 4, 2020), eligible entities who meet the decline in revenue threshold would receive 75% of eligible remuneration paid to employees, up to a maximum of $847 per employee for the first four claim periods. For periods 5 to 9 (July 5 to November 21, 2020), the subsidy is calculated based on a revenue drop, and provides employers the opportunity to receive a top-up to the base subsidy.
Update On November 2, 2020, the federal government introduced Bill C-9, An Act to Amend the Income Tax Act (Canada Emergency Rent Subsidy and Canada Emergency Wage Subsidy) (Act), to implement new targeted support to help hard-hit businesses. On November 19, 2020, the Act received royal assent effectively amending the CEWS’ eligibility criteria and the level of subsidization, among other amendments, as follows: i. It extends the CEWS to June 30, 2021. ii. To ensure that employers have sufficient time to make their CEWS applications, the proposed new deadline to make an application for a qualifying period would be the later of (i) January 31, 2021 or (ii) 180 days after the end of the qualifying period. iii. The maximum base subsidy rate of 40% will continue to apply for periods 8 to 10 (October 25 to December 19, 2020). Similarly, the maximum top-up rate will remain at 25% for periods 8 to 10. Therefore the maximum subsidy rate will be 65%, with a maximum subsidy payment of $733.85 per week per employee. iv. The revenue-decline test for the base subsidy and the top-up subsidy would be harmonized from September 27 onward. Instead of using the current three-month revenue-decline test for the top-up subsidy, both the base and top-up would be determined by the change in an eligible employer's monthly revenues, year-over-year, for either the current or previous calendar month. v. For employers using the alternative revenue-decline test (announced on April 8, 2020), both the base subsidy and the top-up subsidy would be determined by the change in an eligible employer's monthly revenues relative to the average of its January 2020 and February 2020 revenues. vi. The safe harbour rule will continue to apply for periods 8 to 10. The rule provides an eligible employer to a top-up subsidy rate that is no less than it would have received under the three-month revenue-decline test. vii. It revises the “baseline” remuneration definition to accommodate workers returning from leave (e.g., compassionate care leave, caregiving leave, maternity and parental leave, sickness leave). An eligible employer would be able to elect for each qualifying period from Periods 5 to 10 (July 5 to December 19, 2020), a special baseline remuneration period in respect of such employees. The special remuneration period would be the 90-day period ending immediately before the beginning of the employee’s leave period. viii. For periods 9 and 10 (October 25 to December 19, 2020), the wage subsidy for furloughed employees will align with EI program to ensure equitable treatment of employees under both the programs. As a result, the subsidy per week in respect of an arm’s length employee (or a non-arm’s length employee who received pre-crisis remuneration for the relevant period) would be: i. the amount of eligible remuneration paid in respect of the week; or ii. the greater of $500 and 55% of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $573 if the employee receives remuneration of $500 or more in respect of the week. ix. It provides that an “eligible employee” means an individual employed by the eligible entity primarily in Canada throughout the qualifying period (or the portion of the qualifying period throughout which the individual was employed by the eligible entity). The general position is that primarily in Canada means more than 50%. x. It clarifies that the elections under paragraph 125.7(4)(c) of the Income Tax Act (computation of revenue in a joint venture) and 125.7(4)(d) (computation of revenue when an entity derives all or substantially all revenues from persons not dealing at arm’s length) can be made for all qualifying periods. xi. It modifies the conditions for application of the asset acquisition rules, as introduced in Bill C-20 and discussed briefly in our Tax Alert, under subsection 125.7(4) of the Income Tax Act. This rule could be used for purposes of calculating the revenue reduction from the previous year when an entity purchases the assets of a business, or of a distinct part of a business, of an arm’s length seller and the purchaser uses those assets to carry on a business. This amendment may thus broaden the rules to the acquisition of a division of a seller, provided all conditions are applicable. xii. It now allows amended elections to be filed. Effective September 27, 2020, “an eligible entity may amend or revoke an election made under this section on or before the date that the application is due for the first qualifying period in respect of which the election is made”. Thus, eligible entities that have already filed elections should consider filing amended claims revising the elections filed if the revisions will increase the available CEWS and can do so on or before the later of (i) January 31, 2021, and (ii) 180 days after the end of the qualifying period. |
6. The Canada Emergency Commercial Rent Assistance (CECRA) program was introduced to help commercial property owners, small businesses, non-profit organizations, and charities suffering from COVID-19. The loans cover 50% of three to six monthly rent payments for eligible small business tenants during April to September.
Update 7. Under Bill C-9, the federal government introduced the Canada Emergency Rent Subsidy (CERS). With the bill receiving royal assent on November 19, 2020, if effectively creates the CERS program to further support businesses, charities, and non-profits that have suffered a revenue drop by providing up to a maximum of 65% of eligible expenses from September 27, 2020 until December 19, 2020. However, the CERS will be in place until June 2021, although details have not been released. The CERS program mimics the CEWS program in that the main eligibility requirements relate to revenue decline thresholds. Entities that are eligible for the CERS are generally (i) CEWS “eligible entities” that (ii) suffer a revenue drop (also as determined under the CEWS) and (iii) pay “eligible rent expense”. The definition of “eligible rent expense” includes both rent and mortgage interest. 8. Working in conjunction with the CERS, the government introduced the Lockdown Support to provide business with an additional 25% in subsidies for eligible expenses. Qualifying organizations that are subject to a lockdown or significantly limit their activities under a public health order issued under the laws of Canada, a province or territory (including orders made by a municipality or regional health authority under one of those laws) are eligible. Eligible expenses for a qualifying period would include commercial rent, property taxes (including school taxes and municipal taxes), property insurance, and interest on commercial mortgages (subject to limits) for a qualifying property, less any subleasing revenues. Any sales tax (e.g., GST/HST) component of these costs would not be an eligible expense. Eligible expenses would be limited to those paid under an agreement in writing entered into before October 9, 2020 (and continuations of those agreements) and would be limited to expenses related to real property located in Canada. Eligible expenses for each qualifying period would be capped at $75,000 per location and be subject to an overall cap of $300,000 that would be shared among affiliated entities. Combined with the CERS, this would mean that hard-hit businesses subject to a lockdown could receive rent support of up to 90%. |
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CANADA REVENUE AGENCY COMMUNICATIONS
Call center services
The CRA has made various changes to its call center services and has provided contact options to the taxpayer.
Electronic signatures
For the authorization forms T183 or T183CORP, the CRA will continue to recognize electronic signatures as having met the signature requirements of the Income Tax Act for the remainder of the tax filing season. Likewise, the Quebec government will continue to accept electronic signatures on some forms beyond September 1, 2020 until further notice.
Update As of January 2021, all representatives that are associated to a firm, business or group, must provide their RepID when calling the CRA on behalf of a client, and those RepIDs must be associated to the business or employer. |
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COLLECTIONS, AUDIT, OBJECTIONS AND TAX COURT APPEALS
National Business Resumption Plan
On June 23, 2020, the CRA released its National Business Resumption Plan (NBR). The NBR sets out which services CRA will resume and in what order, with an estimated timeline for the resumption of the services up until November 2020.
Below is a list of services that CRA resumed in November:
CRA’s release includes the full list of services and timelines for resumption of each service. Audits of CEWS applications As anticipated, the CRA is gradually commencing audit activities with a new focus of auditing various CEWS applications.
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Time Limits and Other Periods Act (TLOPA) and its implications
The Time Limits and Other Periods Act (TLOPA) was enacted under Bill C-20. Under the TLOPA, the CRA has been given a temporary authority to extend certain deadlines imposed under the Income Tax Act and Excise Tax Act through the issuance of a Ministerial Order. Since then, the Minister of National Revenue has issued a Ministerial Order extending the statutory time limits under the Income Tax Act and the Excise Tax Act. The period of extension is a maximum of six months and ending no later than December 31, 2020.
The CRA provides explanatory notes for the Income Tax Act provisions and the Excise Tax Act provisions as well as an FAQs page.
The TLOPA also suspends time limits from March 13, 2020 to September 13, 2020, inclusive, relating to the Tax Court of Canada proceedings that are contained in the Income Tax Act, Excise Tax Act, Tax Court of Canada Act, Tax Court of Canada Rules (General Procedure), Tax Court of Canada Rules (Informal Procedure), and other statutes and regulations. However, TLOPA provides authority to courts to vary or suspend the time limits as provided under TLOPA.
New T4 requirements for 2020
The CRA has announced that it will introduce new reporting requirements which will require employers to report and code employment income and retroactive payments based on reporting periods for 2020. These reporting requirements will help the CRA validate payments under the CEWS, the CERB) and the CESB.
Home Office Expenses and T2200
On September 11, 2020, the CRA conducted a consultation hosted by the Canadian Chamber of Commerce. The purpose of the consultation was to obtain feedback on the deductibility of employee’s work-space-in-the-home expenses and related compliance measures (T2200 form).
During the consultation, the CRA confirmed that the requirement to work from home does not need to be in writing. A “meeting of the minds” between the employer and the employee requiring that the work must be done from home satisfies this requirement. It is expected that many employees forced to work from home during the pandemic will meet this requirement.
Currently, the CRA still requires employers to provide employees with a T2200. CRA proposed to shorten and simplify the T2200 (short-form draft for discussion), but even with the simplified T2200, the administrative burden for employers is significant. It was proposed by stakeholders that the declaration can instead be done by amending the T4 slip (by adding a check box and numerical box to the T4 slip). The CRA is still working on providing clarity on what constitutes a “meeting of the minds”, the nature of qualifying expenses, and the availability of this deduction during the COVID-19 pandemic.
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INTERNATIONAL INCOME TAX: CRA AND COVID-19
Update The CRA updated its guidance on international income tax issues. While most measures expired on September 30, 2020, the CRA has extended its position on Cross-border employment income until December 31, 2020. In particular, section III.-D has been added to address the situation that may arise if a non-resident employee of a non-resident employer travelled to Canada for personal reasons and, because of the travel restrictions, was unable to return to their country of residence. The CRA will not assess or penalize a non-resident employer for failing to withhold the required Canadian payroll deductions, in respect of remuneration paid to a non-resident employee performing duties of employment remotely in Canada, if certain criteria are met. |
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SELECTED PROVINCIAL UPDATES
Name of province | Description of measures introduced by their respective governments | |
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1. Deferring until further notice the previously announced retail sales tax rate reduction, introduction of a green levy, and the tobacco tax rate increase that were effective July 1, 2020. 2. Expanding its “Back to Work” wage subsidy program by two months until December 31, 2020. The enhanced Back to Work program will reimburse up to $5,000 for up to 10 new workers to a maximum of $50,000 per business, not for profit or charity. Businesses, including new start-ups, can also hire students previously hired through the summer work programs.
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1. Government of New Brunswick Small Business Emergency Working Capital Program to provide small business owners with working capital loans. | ||
1. Increase in the Employer Tax Exemption on up to $1 million of payroll in 2020 for private-sector employers (other than registered charities) with total annual Ontario remuneration of less than $5 million. 2. The government of Ontario is providing loans of up to $50,000 to Indigenous-owned small and medium sized businesses. Up to 50% of each loan will be in the form of a non-repayable grant, with no interest due on the loan portion until December 31, 2022. Businesses may use these funds to cover general expenses such as payroll, rent, utilities and taxes.
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| 1. Suspension of collection actions will end on October 5, 2020, but the requirements to pay (GST debts) are suspended until further notice.
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Taxpayer | Federal/Province | Tax return filing deadline | Tax payment deadline |
Charities | Federal | Form T3010 due between March 18, 2020 and Dec. 30, 2020, extended to Dec. 31, 2020. | Not applicable. |
Quebec | Form TP-985.22-V due between March 17, 2020 and Dec. 30, 2020, extended to Dec. 31, 2020. | Not applicable. | |
SR&ED | Federal | Under TLOPA, the CRA has extended some of the reporting deadlines for scientific research and experimental development (SR&ED) claims: | Not applicable. |
Quebec | Filing deadline for form RD-222-V, Deduction Respecting Scientific Research and Experimental Development Expenditures that is due between March 17 and December 30, 2020 has been extended until December 31, 2020. | Not applicable. | |
Alberta | SR&ED filing deadlines that otherwise occurred on or after March 13, 2020 are hereby extended by six months or to March 31, 2021, whichever date comes first. | Not applicable. |
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Source: RSM Canada
Used with permission as a member of RSM Canada Alliance
https://rsmcanada.com/our-insights/tax-alerts/tax-updates-in-canada-in-response-to-covid-19.html
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