At over 400 registrants, an astounding number to reach for any event (let alone a virtual event only applicable to those operating a business seeking relief funding), Manitoba business owners gathered to get advice from the experts. The webinar was focused on highlighting the big three federal relief funds: CEWS, CERS and the CEBA loan program. We welcomed host Lauren McNabb, CJOB radio co-host of “The Start” morning show, along with two presenters: Leilani Kagan, taxation lawyer at TDS Law and Ken Goodridge, senior tax manager at Lazer Grant LLP. Together, they discussed the challenges for business owners applying to these programs, outlined the eligibility requirements, and answered an array of questions from business owners. Here are the top takeaways from the discussion.
DATA & POLLS
This event was sparked by alarming results from the 2020 Manitoba Business Outlook survey conducted by the Manitoba Chamber of Commerce that revealed only 40% of Manitoba business owners have taken advantage of federal relief funding. The majority of respondents cited difficulty navigating the funding programs as their top concern. Presenters Ken Goodridge and Leilani Kagan express the same complications when working with clients to apply to the programs. Not only is the requirement list exhaustive, but the rules are constantly changing. Leilani expressed that her team at TDS law referenced no fewer than a dozen news sources almost on a daily basis throughout the peaks of the pandemic. Conveying the complexity of programs to clients, and distinguishing their unique circumstances while sifting through a tremendous amount of information released by the CRA has and remains the top challenge.
In a poll conducted at the live event with 250+ registrants in attendance, one-quarter cited the hesitation for applying to these federal relief programs as “It’s too complex,” and one-half cited “Not enough revenue decline to qualify”. Ken Goodridge confirms these findings in his own experience with clients over the past year. The importance of seeking professional advice is critical to understanding your business’ unique circumstances and ensuring your scenario fits the eligibility requirements. Many clients don’t want to bother with the burden of applying because they “don’t believe they really need it”. However, Ken pushes back with the notion that: you will be paying taxes to pay off these programs anyway, so you might as well apply and receive the benefits from them. Regardless of complexity, these programs are here to support businesses through these unprecedented times. Professionals recommend you take advantage of what’s available if you are eligible.
CEWS: AN OVERVIEW
If we cast our minds back to March 2020, when the world changed for everyone, the first COVID-19 assistance program launched for businesses. It was called TWS - the Temporary Wage Subsidy - otherwise known as, “the 10% thing”. Ken expresses that it quickly became apparent that this was not an adequate program to meet businesses’ needs. Then came along CEWS - the Canadian Emergency Wage Subsidy - otherwise known as, “the 75% thing”.
The purpose of CEWS is to:
Encourage eligible employers to avoid job losses
Recall previously laid off workers
Position employers to resume normal operations once it’s feasible to do so
CEWS has come with its own complexities and has been through multiple versions and changes, ultimately complicating the program further. However, Ken appreciates that the reasoning behind its many versions and changes is to make it more fair and more accessible to the businesses that need it. Compared to the TWS - CEWS is far more accessible.
CEWS pays its eligible employers a subsidy of up to 75% of wages (up to $847.00 per week). CEWS has been extended to run until June 2021 and looks at a baseline remuneration of a weekly average of wages paid from January to March 15, 2020. Part of the CEWS rollout in period 5 (July 5-August 1, 2020) was to remove the 30% threshold previously placed on the TWS, so that any business with a decline in revenue from their prior reference period would be eligible for a subsidy. To help businesses calculate their subsidy, the CRA released an online calculator that is seen to be user friendly and accessible. However, business owners will be required to enter payroll information for each employee, which can be a daunting but necessary task.
Another update from CEWS during the period 5 rollout was the adjustment to include non arms’ length employees (business owners and their immediate family members) to submit reference periods between July 2019-December 2019 (rather than January-March 2020).
If your business has not yet applied for CEWS, you may still qualify and apply retroactively for periods 1 through 5. Businesses have a deadline of January 31, 2021, to claim for past periods.
Ken walks us through the two primary requirements to apply for the CEWS:
The business must have a payroll account as of March 15, 2020, or have purchased assets in an existing business
The business must have a revenue decline in a particular period
The amount of any income you receive from the wage subsidy is considered income for tax purposes (you have to include it in income, and you have to pay income tax on it). To calculate a revenue decline, you must take revenue from your current period, and divide it by the revenue from your comparison period. Once you subtract that total, multiply it by 100 to get the percentage. The CRA calculator will assist you with these calculations.
You are deemed to have received the subsidy on the last day of the period to which it applies. That means, if you applied for the subsidy in period 5, you are deemed to have received it on the last day of the period (keep in mind, you may not receive the subsidy until weeks later).
Ken outlines that most businesses and not-for-profits qualify to CEWS. There are very few organizations that will not qualify, such as: municipalities, local governments, crown corporations, colleges, schools, hospitals, etc. Most sole proprietors, corporations, partnerships all qualify. The government estimated the cost of the CEWS program from the end of December 2020 is 68.5 billion dollars. It’s a huge program that will undoubtedly conduct audits. Ken advises that recipients of the subsidy keep all their records to support claims.
CERS: AN OVERVIEW
Established more recently is the CERS - the Canadian Emergency Rent Subsidy in September 2020. CERS has replaced what was formerly known as the CECRAP - the Canadian Emergency Commercial Rent Assistance Program. CERS’ purpose was to aid landlords and tenants who saw a drop in revenue due to the pandemic.
CERS covers part of commercial rent or property expenses and applies to both owners and renters. The program is administered by the CRA and consists of two parts:
A maximum of $75,000 in eligible expenses per location, with an overall maximum of $300,000 in expenses per claim period
For claim periods 1-3, the maximum subsidy rate is 90% - this consists of the 65% base subsidy and an extra lockdown support rate of 25% for tenants
Lockdown support amount
No maximum amount, but renters are eligible for a lockdown top up subsidy of 25%
CERS claim periods are divided into four, four week claim periods with the first beginning on September 27, 2020. Each claim period must be applied for separately. The program runs until June 2021 and eligible entities can apply retroactively to September 27, 2020.
In order to be eligible for the CERS, an entity must meet the below four criteria:
You have to have a CRA business number on September 27 or have had a payroll account on March 15, 2020. If neither of these applies, another person or partner has to have been making payroll remittances on your behalf or have purchased another business. Each option refers to having a CRA business number and the few variations around that if you didn’t have one.
You have to be an eligible business - this is defined in the policies and includes charities and not-for-profit entities.
You have to have experienced a reduction in eligible revenue, which is a very tightly defined term. That reduction has to be from a previous period than the one you are applying for.
You have to have a qualifying property, which is defined as a property that you own or you rent and use in the course of your ordinary business activity.
Businesses who are eligible to apply for the CERS includes but is not limited to:
Individuals or partnerships
Boards of trade
Chambers of commerce
Prescribed organizations (e.g., registered amateur athletic associations, private schools or colleges)
Entities that are excluded from applying to the CERS includes but is not limited to:
Public schools, universities or colleges
CEBA LOAN: AN OVERVIEW
The CEBA loan program was established in April 2020, very soon after the pandemic hit. Its primary function is to help businesses cover their operating expenses associated with the losses due to the pandemic. The CEBA loan provides an interest-free (until December 2022) and partially forgivable loan to businesses. Eligible businesses can apply for this loan through their bank or credit union. There are more than 220 financial institutions across Manitoba that are set up to offer this program. It’s the easiest of the three big federal funds to access and the deadline to apply for the program is March 31, 2021.
Key highlights of the CEBA loan:
Began as a $40,000 loan until December 2020, when it increased to $60,000.
The loan is interest-free until December 31, 2022, with no principal repayments required nor interest until the end of 2022.
Loans that were advanced up to $40,000 are eligible to have $10,000 forgiven, provided that $30,000 is paid back by the end of 2022.
Loans that were advanced up to $60,000 are eligible to have $20,000 forgiven, provided that $40,000 is paid back prior to the end of 2022.
If any loan amount is not repaid, beginning on January 1, 2023, the interest will accrue on the balance of the loan at a rate of 5 percent.
The full balance of the loan must be repaid no later than December 31, 2025.
The taxpayer must have a CRA business number with an effective registration date on or before March 1, 2020.
You must have the intention to continue operating your business or to resume operations.
You must have 1 of 2 of these two:
Meet the payroll eligibility criteria - which is having paid in 2019 between $20,000 and 1.5 million.
Have a minimum of $40,000 in eligible non-deferred expenses and have filed a 2018 and 2019 tax return.
If you fulfil the criteria, you can make the CEBA loan application through your selected financial institution.
There are 220 organizations in the province that can assist taxpayers in applying for the loan.