On Thursday, January 14, Vexxit and the Manitoba Chamber of Commerce hosted a free webinar for Manitoba business owners surrounding the big three federal relief funds: CEWS, CERS and the CEBA loan.
We received over 60 questions from event registrants, many of which we didn’t have time to cover at the live event. Presenters Ken Goodridge and Leilani Kagan went back and compiled answers to your questions below. Take a look!
Question: Is the wage subsidy considered taxable income?
Answer: Yes it is! If you go to the CRA website, this should be reported as income. You are deemed to have received it on the last day of the period it applies to.
Question: I am a retail store owner. Can I claim myself for the wage subsidy?
Answer: This depends on whether or not you paid yourself any salary between January 1 - March 15. Store owners are considered non-arm's length employees. If you didn't pay yourself a salary then you wouldn't be eligible for a wage subsidy.
Question: Can any "Turndown" Decisions be Appealed? If so, how?
Answer: There are two processes for the Canada Emergency Wage Subsidy. There is one process for a denial that is received before September 21, 2020, and a slightly different process that applies for a denial received on or after September 21, 2020. I recommend that you go to the CEWS website and look at question 36 of the Frequently Asked Questions.
Question: We hired a family member (that lost their job elsewhere due to COVID) and filled a vacant position within our company. However, it appears that we are unable to claim them on our CEWS application because they are not at arm's length. Is that correct?
Answer: That is correct. If they had paid themselves between July 1 - December 31, 2019, they may qualify for periods 5 and on. But not periods 1-4. In this particular case, if they started working after March 15, they would not qualify in either period.
Question: For a small organization with 1-3 employees, the CEWS has been key, however, it is a challenge to manage the booking and accounting, in part because the program keeps evolving. Are there certain basic rules, guidelines for recording this payroll support?
Answer: You will report this as income/revenue.
Question: Wage subsidy.... you own the corporation and pay yourself a wage from the company as a manager's salary as you were actively working every day in the business. In our restaurant and housekeeping. Do you qualify for a wage subsidy?
Answer: Provided they paid themselves a wage between January 1-March 15 they would then qualify for periods 1-4 but they would also qualify for later periods. If they didn't pay themselves a wage between January 1-March 15 they would qualify for periods 5 and subsequently provided they paid themselves a wage in the period of July 1-December 31, 2019.
Question: With the wage subsidy - If you go over the average revenue amount, are you out the wage subsidy just for that month or from then on?
Answer: If you do not qualify in a particular month because you did not have a sufficient revenue decline, you may still qualify in subsequent months.
Question: With CEWS extended to June 2021, how will the prior reference period and continued eligibility be determined/calculated?
Answer: The government has so far only provided details on how the subsidy is to be calculated for claim periods until March 13, 2021.
Question: When filling my business T4 where do we show the 10% wage subsidy or $25,000 cause on CRA website there is no section for this when filling.
Answer: You have to fill out a PD27, 10% Temporary Wage Subsidy Self-Identification Form for Employers. You can find it on the Website for the TWS.
Question: The CERS is good for this past fall, but I really needed support in the spring when the initial lock-down happened. My landlord didn’t apply for the other rent subsidy program. Now I still owe them money, plus, hydro, and water, and taxes, etc. Is there anything else I can do?
Answer: Unfortunately we're not aware of any programs that provide the type of support you're seeking for the period you've mentioned. The reason why the government amended the rent program is that the first iteration of the subsidy whereby the landlord had to apply for the program was because it was extremely underutilized and unsuccessful. The government changed it, and for your scenario, you are unable to go back before September 27, 2020
Question: I own 2 companies. One is the operating business and the other owns the commercial property which receives rent from the operating company. Under CECRA it was clear that related companies qualified for funding and my property company received CECRA funding. With CERS, I haven't found a clear statement that related companies qualify. Is my operating company eligible for CARERS funding?
Answer: CECRA was the first iteration of the CERS program, where the landlord had to apply on behalf of the tenant. In this case, we might need to review the specific facts of the situation. When the government uses arm's length / non-arm's length it depends on facts and how you're set up. In general, for the purpose of CERS, the properties that are primarily used to earn rental income directly or indirectly from a related party (or non-arm's length party) that are primarily used by that party to earn rental income are considered non-qualifying properties. Expenses from non-qualifying properties are therefore not eligible to be claimed under the CERS program. According to CRA, where the same person or a group of persons controls 2 corporations, they are considered to be related and deemed non arm's length for the purpose of that program. Again, there are some specific facts and circumstances that may change that answer. But in general, the related parties would make you ineligible for the expenses.
Question: I looked into the CEBA loan early on, and was told that because I was a sole proprietor and not incorporated, I wasn’t eligible. Has that changed, and if so, can I go back to my bank and try again?
Question: Will there be CRA audits to see what you spent the $40,000 loan for?
Answer: Yes. Ken was a long time CRA employee. There will be extensive audits on ALL these programs. Ken cautions everyone to keep documentation to support your application, what you spent the money on, etc.
Question: Is there any flexibility with the CEBA Program to accommodate a Business Application where the Corporation has been registered after March 1, 2020 and outside of the CEBA Program requirement as noted below? The Corporation was registered in June 2020 and completed an Asset Purchase Agreement in September 2020. Has an active CRA Business Number (BN) with an effective date of registration on or prior to March 1, 2020. What other Financial Assistance Programs are available for Businesses who have Incorporated after March 1, 2020?
Answer: On the CEBA, you don't have the same flexibility as CEWS or CERS. You would have to look at the recovery relief fund to see what might be available. If you purchased the assets of an existing business in September 2020 you may qualify for CEWS but you may have to file a joint election with the entity you purchased the assets from. You can then use the prior comparison period for that corporation. For October for example you could use the October numbers that the previous owner had. You'd have to look at this very carefully.
Question: I applied for the $60,000 loan and if I didn't take any more assistance it would be forgiven and now they say it was changed to a grant and taking help would not affect payment. Now I am wondering what I qualify for.
Answer: The program rules haven't changed substantially for CEBA, the requirements are still the same. Just the amount has changed. You are still entitled to qualify for other programs if you are receiving CEBA - if you are eligible.
Question: We applied and received a $40k CEBA loan online directly with the government. Can we go back online again to top up to $60k or do we have to go to FI?
Answer: You should be able to do it either way. Your financial institution should be open and willing in doing so to top up. But you should be able to do it either way.
Question: When is the forgivable portion of CEBA to be reported as income? The year received? OR is the year forgiven?
Answer: The year it's received.
Question: I do not have any employment income paid for 2019, am I ineligible?
Answer: Assuming the question is related to the business account program. Even if the business did not have any employment income paid for 2019, you may still be eligible for the account through the non-deferrable expense stream. In addition to the general eligibility criteria, you also have to have eligible non-deferrable expenses between $40,000 and 1.5 million. This can include costs such as rent, property taxes, utilities, insurance. Expenses will be subject to verification and audit, as will all of these applications. You have to have filed an income tax return with CRA with a tax year ending in 2019. Or, if you have not submitted yet for 2019 you must have submitted for 2018.
Question: Should these grants be reported as grant revenue or used to decrease salary and rent costs?
Answer: It really shouldn't matter, but it does. It makes no difference on your taxable income whether you report it as revenue or a deduction in expense. However, CRA has stated on their website they want it to be shown as income. I'd suggest it as a good idea to do that anyway because if you receive any subsidy from CEWS and the CRA doesn't see it on your income statement they might think you didn't report it. So, I would definitely show it as grant revenue.
Question: What is the federal or Ontario provincial government offering to recent start-up businesses to assist them.
Answer: So the assistance for start-up businesses is generally found within the provinces. A southern Ontario specific fund was established to assist businesses affected by the pandemic that were unable to access other federal pandemic support programs. In that case, you would need to apply through the regional relief fund that would apply in southern Ontario. And, in the responses we have some website information - there are a variety of other measurements that are dealing with COVID-19 business help for Ontario businesses.
Question: Is there any way for newer businesses to access federal funding? We opened our doors in October and then had to close in November but from what we can find we are not eligible for any federal funding.
Answer: The is a regional relief recovery fund that was established to assist businesses affected by the pandemic but was unable to access federal pandemic support programs. A lot of federal programs rely on the history of running or acquiring a business. I'd encourage the participant to look at the regional relief recovery funds and assuming you're in Manitoba, there is some website information for small/startup businesses in Manitoba/Ontario.
Question: Many companies in our industry see negative contributions from additional revenue. Margins are so thin, that every additional dollar in sales negates CEWS and CERS subsidies. No one wants to turn away business, but there isn’t a clear disincentive to find new business. Is there relief or workarounds who find themselves in this situation?
Answer: We are extremely sympathetic to these circumstances. The program is that the criteria for these programs are so specific and they are really based on revenue decline. Without knowing in detail how CRA came up with a lot of these numbers, unfortunately, these programs cannot meet everyone's needs. This is a true problem. It's a clear disincentive to find a new business because you need a revenue decline to qualify. Many businesses have been left out. Unfortunately, these programs don't allow you to see increases in revenue while still accessing them (besides the CEBA - it's not tied to revenue)
Question: What are the obligations of employers in regards to preparing and submitting T4's as it relates to CEWS, CERS, and CEBA
Answer: I'm not sure how CERS or CEBA would impact T4's, but CEWS impacts T4's. There are new boxes that need to be filled out on T4's by the employers. Those are boxes 57-60. You have to indicate in 57 what the employment income from March 15-May 9 was. On 58 the employment income from May 10-July 4. Box 59 is employment income from July 5-August 29. For box 60 it's employment income from August 30-September 26. What CRA wants to verify based on the T4's is what wages you actually paid in those periods. They want to be able to match things up. If you are doing your own T4's, you have to go back and dig up that information.
Question: I laid off three employees early on in the pandemic in 2020, one was collecting EI and the other two were collecting CERB. My revenues are still down, and I didn’t think I could afford to bring them back. If I decide to apply for the wage subsidy, I assume that means that I have to bring the employees back, pay them and then submit at the end of the period? How does that process work?
Answer: Yes, unless you are paying them there is no way to base the subsidy on. The subsidy is based on 75% of the wages you paid to them.
Question: What can we do if we have a home business that has a city business license but has no business registration number from CRA? We have been open since January 1 2020.
Answer: All of these programs are predicated on having a CRA business number. Or, if you are an individual, a SIN and you otherwise fall under the criteria of the program.
Question: How will the Government be able to audit all these Federal Financial Relief Programs for compliance? Can we retain electronic copies of Documents or do we have to have hard copies of all supporting documentation on hand in the event of a future audit?
Answer: I expect that we will see auditors from the Canada Revenue Agency auditing all of these programs. I anticipate that in most cases taxpayers will be required to submit the supporting documentation electronically, which is how many audits are now done. As for the second part of the question, I expect that CRA is only going to look at your electronic copies of documents, but I would keep any paper documents just to be safe.\
Question: What is planned for the businesses that don't qualify or have got rejected from CERB covid grants?
Answer: I am assuming that the person who asked the question was referring to CERS, not CERB. I have no idea if the government has anything else planned for people who did not qualify.
Question: How do we classify CEWS & CERS on our Financials? Is it "Other Income"?
Answer: I would classify CEWS and CERS as “other income”.
Question: We are a family operated business and I found because family members are on the payroll we did not qualify for most of the support. What do you suggest to take advantage of? We do not want to take a loan.
Answer: You may qualify for assistance from the provincial government. The Manitoba government has a website that deals with relief programs, I would check there. Also, you may still qualify for CEWS even for employees who are family members provided that they received remuneration prior to March 15, 2020.
Question: Is the Benefit classified as income in the Month Received or the Specified Period?
Answer: The benefit is income received on the last day of the period to which it relates
Question: When comparing periods, I moved my home based business to retail storefront in March 2020. Is there a way to compare different financial periods to qualify? My new revenue is clearly higher than home based, but I still have huge new expenses from the expansion, rent etc.
Answer: I am not aware of a way to compare different financial periods in this situation.
Question: If your income goes over the comparison amount one month, or you out of wage subsidy just for that month or for good?
Answer: If you do not qualify in a particular month because you did not have a sufficient revenue decline, you may still qualify in subsequent months.
Question: If deemed to receive it on the last day of the claim period, does this count toward the calculation of revenue decline?
Answer: No, the benefit is not considered income for purposes of calculating the revenue decline.
Question: If we pay a $1.00 as Salary to an Individual for the period January 1 to March 15, 2020, can this ensure we are Compliant?
We hope this helps answer some of your most pressing questions. If you need further assistance and would like to work with a professional, use Vexxit to match with the right professional for your needs.