Canada Emergency Business Account (CEBA)
This program is designed for small businesses to have access to capital. It will be implemented by eligible financial institutions in cooperation with Export Development Canada (EDC).
This $25 billion program will provide interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced, due to the economic impacts of the COVID-19 virus.
Small businesses and non-profits should contact their financial institution to apply for CEBA loans.
To qualify, these organizations must demonstrate they paid between $20,000 to $1.5 million in total payroll in 2019, verifiable by Canada Revenue Agency documentation (a T4 summary of remuneration paid, or T4SUM). Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 percent (up to $10,000).
On May 19, the eligibility criteria were expanded to include sole proprietors receiving income directly from their businesses, businesses that rely on contractors, and family-owned corporations that pay employees through dividends rather than payroll.
As part of the May 19 expansion, applicants with payroll lower than $20,000 can now qualify. They are required to have a business operating account at a participating financial institution; a Canada Revenue Agency business number, and to have filed a 2018 or 2019 tax return; and eligible non-deferrable expenses (such as rent, property taxes, utilities, and insurance) between $40,000 and $1.5 million.
The complete announcement from May 19 expanding CEBA can be found here: https://pm.gc.ca/en/news/news-releases/2020/05/19/prime-minister-announces-expansion-support-workers-and-small
Business Credit Availability Program (BCAP)
The federal government has established a Business Credit Availability Program (BCAP) to provide $40 billion of additional support through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC).
BDC and EDC are working with private sector lenders to coordinate on credit solutions for individual businesses, including in sectors such as oil and gas, air transportation, exports and tourism.
This program includes two elements, the Loan Guarantee for Small and Medium Sized Enterprises, and the Co-Lending Program for Small and Medium Sized Enterprises.
Loan Guarantee for Small and Medium-Sized Enterprises
This program provides credit and cash flow term loans to small and medium-sized enterprises. Canadian businesses in all sectors that were otherwise financially viable and revenue generating prior to the COVID-19 outbreak are eligible to apply.
It allows financial institutions to issue operating credit and cash flow term loans of up to $6.25 million to existing clients, with 80 per cent guaranteed by EDC.
This money is to be used for operational expenses, not for dividend payouts, shareholder loans, bonuses, stock buyback, option issuance, increases to executive compensation or repayment/refinancing of other debt.
This program is now available at various financial institutions and credit unions.
Co-Lending Program for Small and Medium-Sized Enterprises
This program provides term loans for operational and liquidity needs of businesses, which could include interest payments on existing debt. Similar to the EDC program, this program is available to businesses that were financially viable and revenue-generating prior to the COVID-19 outbreak.
The program is designed in three segments to target support to different business sizes.
Loans would be interest-only for the first 12 months, with a 10-year repayment period.
Application details will be made available through financial institutions.
Large Employer Emergency Financing Facility (LEEFF)
LEEFF will provide bridge financing to Canada’s largest employers, whose needs during the pandemic are not being met through conventional financing, in order to keep their operations going.
This support will not be used to resolve insolvencies or restructure firms, nor will it provide financing to companies that otherwise have the capacity to manage through the crisis.
Employers must have a minimum of $300 million in revenue, are seeking a minimum of about $60 million in financing, significant operations/workforce in Canada, and not be involved in active insolvency. Companies in the financial sector are excluded, as are any companies convicted of tax evasion.
On May 11, the Prime Minister announced LEEFF and additional funding to BCAP, including loans of up to $60 million per company, and guarantees of up to $80 million.
The full release can be found here: https://pm.gc.ca/en/news/news-releases/2020/05/11/prime-minister-announces-additional-support-businesses-help-save
Regional Relief and Recovery Fund: COVID-19 (RRRF)
RRRF will provide a total of $962 million to mitigate the financial pressure experienced by businesses and organizations to allow them to continue their operations, including paying their employees, and to support projects by businesses, organizations and communities to prepare now for a successful recovery.
This initiative is implemented by the six regional development agencies. There are two components to RRFF:
More information on the RRRF program is available here: https://www.ic.gc.ca/eic/site/icgc.nsf/eng/h_07682.html
New Business Subsidy Programs
The Canada Emergency Wage Subsidy (CEWS)
The goal is to help businesses keep and return workers to their payroll through the challenges posed by the COVID-19 pandemic. This would provide a 75 per cent wage subsidy to eligible employers for up to 24 weeks, retroactive to March 15, 2020.
Updates to the program were announced on May 15, including an extension of the program to August 29, 2020, allowing employers to use CEWS for up to 24 weeks (up from 12 weeks) as well as regulatory changes which have expanded the program to more businesses.
More details on these changes are coming soon. The full release from May 15 regarding the expansion of CEWS is available here: https://www.canada.ca/en/department-finance/news/2020/05/extending-eligibility-for-the-canada-emergency-wage-subsidy.html
Eligible employers would include individuals, taxable corporations, partnerships consisting of eligible employers, non-profit organizations and registered charities.
This subsidy would be available to eligible employers that see a drop of at least 15% of their revenue in March 2020 and 30% for the following months (see Eligible Periods). In applying for the subsidy, employers would be required to attest to the decline in revenue.
An employer’s revenue for this purpose would be its revenue in Canada earned from arm’s-length sources. Revenue would be calculated using the employer’s normal accounting method.
Employers would be allowed to calculate their revenues under the accrual method or the cash method, but not a combination of both. Employers would select an accounting method when first applying for the CEWS and would be required to use that method for the entire duration of the program.
For registered charities and non-profit organizations, the calculation will include most forms of revenue, excluding revenues from non-arm’s length persons. These organizations would be allowed to choose whether or not to include revenue from government sources as part of the calculation. Once chosen, the same approach would have to apply throughout the program period.
Amount of Subsidy
The subsidy amount for a given employee on eligible remuneration paid for the period between March 15 and August 29, 2020 would be 75% of the amount of remuneration paid, up to a maximum benefit of $847 per week.
Employers will also be eligible for a subsidy of up to 75% of salaries and wages paid to new employees.
Eligible remuneration may include salary, wages, and other remuneration like taxable benefits. However, it does not include severance pay, or items such as stock option benefits or the personal use of a corporate vehicle.
A special rule will apply to employees that do not deal at arm’s length with the employer. The subsidy amount for such employees will be limited to the eligible remuneration paid in any pay period between March 15 and June 6, 2020, up to a maximum benefit of the lesser of $847 per week and 75% of the employee’s pre-crisis weekly remuneration. The subsidy would only be available in respect of non-arm’s length employees employed prior to March 15, 2020. There would be no overall limit on the subsidy amount that an eligible employer may claim.
Emergency Wage Subsidy Example: Bruno and Tisha run a floral shop in Winnipeg, Manitoba. They have four full‑time employees, each earning $800 per week, and 6 part-time employees, each earning $400 per week, for a total weekly payroll of $5,600. Bruno and Tisha have closed their shop and are only fulfilling online orders during this challenging period. They are keeping all of their employees on the payroll, paying them their full regular wages, despite their revenues being down by 30 per cent. Bruno and Tisha would be eligible for a weekly wage subsidy of $4,200 ($600 for each of their full-time employees and $300 for each of their part-time employees).
Eligibility would generally be determined by the change in an eligible employer’s monthly revenues, year-over-year, for the calendar month in which the period began.
All employers may calculate their change in revenue using an alternative benchmark to determine their eligibility. This would provide more flexibility to employers for which the general approach may not be appropriate. Under this alternative approach, employers would be allowed to compare their revenue using an average of their revenue earned in January and February 2020.
Employers would select the general year-over-year approach or the alternative approach when first applying for the CEWS and would be required to use the same approach for the entire duration of the program.
The amount of wage subsidy received by the employer in a given month would be ignored for the purpose of measuring year-over-year changes in monthly revenues
Here is a link to the CEWS calculator: https://www.canada.ca/en/revenue-agency/services/subsidy/emergency-wage-subsidy/cews-calculate-subsidy-amount.html
The table below outlines each claiming period, the required reduction in revenue, and the reference period for eligibility.
|Periods for CEWS Calculation|
|Claiming period||Required reduction in revenue||Reference period for eligibility|
|Period 1||March 15 to April 11||15%||March 2020 over:
|Period 2||April 12 to May 9||30%||April 2020 over:
|Period 3||May 10 to June 6||30%||May 2020 over:
An eligible employee is an individual who is employed in Canada.
Eligibility for the CEWS of an employee’s remuneration, will be limited to employees that have not been without remuneration for more than 14 consecutive days in the eligibility period (i.e., from March 15-April 11, from April 12-May 9, and from May 10-June 6).
This rule replaces the previously announced restriction that an employer would not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the Canadian Emergency Response Benefit.
How to Apply
Eligible employers would be able to apply for the CEWS through the Canada Revenue Agency’s My Business Account portal as well as a web-based application. Employers would have to keep records demonstrating their reduction in arm’s-length revenues and remuneration paid to employees. More details about the application process will be made available shortly.
Interaction with 10% Wage Subsidy
On March 25, 2020, the COVID-19 Emergency Response Act, which included the implementation of a temporary 10% wage subsidy, received Royal Assent. For employers that are eligible for both the CEWS and the 10% wage subsidy for a period, any benefit from the 10% wage subsidy for remuneration paid in a specific period would generally reduce the amount available to be claimed under the CEWS in that same period.
On March 18, 2020, the Prime Minister announced an extension of the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks for employers affected by COVID-19. This measure will provide income support to employees eligible for Employment Insurance who agree to reduce their normal working hours because of developments beyond the control of their employers.
For employers and employees that are participating in a Work-Sharing program, EI benefits received by employees through the Work-Sharing program will reduce the benefit that their employer is entitled to receive under the CEWS.
Comparison of the Two Wage Subsidy Programs
|The 10% Wage Subsidy||Canada Emergency Wage Subsidy|
|Coverage period||90 days (March 18 to June 19)||12 weeks (March 15 to June 6)|
|Rate||10% of the wages of each employee||75% of the wages of each employee|
|Wages baseline||The 10% subsidy is calculated based on how much the employee receives in wages in the current period.||The 75% subsidy is calculated based on the amount “normally earned by employees”.
Eligible remuneration may include salary, wages, and other remuneration like taxable benefits. These are amounts for which employers would generally be required to withhold or deduct amounts to remit to the Receiver General on account of the employee’s income tax obligation. However, it does not include severance pay, stock option benefits or the personal use of a corporate vehicle.
|Maximum subsidy per employee||$1,375||$10,164|
|Maximum subsidy per employer||$25,000||No limit|
|Eligible businesses||Businesses eligible for the Small Business Deduction
|Any employer, except the public sector
Must see a drop of least 15 per cent of revenue in March 2020 and 30 per cent for the following months (see Eligible Periods). In applying for the subsidy, employers would be required to attest to the decline in revenue.
|Top-up required?||Yes, legislation suggests that it would be.||No, but the employer will have to attest they are doing everything they can to try.|
|Mechanism||The subsidy is a deduction on the corporation’s remittances to the CRA.||Online through CRA’s My Business Account portal, soon to be launched.|
Employers will be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements. Penalties may apply in cases of fraudulent claims. The penalties may include fines or even imprisonment. In addition, anti-abuse rules would be put in place to ensure that the subsidy is not inappropriately obtained and to help ensure that employees are paid the amounts they are owed.
Employers that engage in artificial transactions to reduce revenue for the purpose of claiming the CEWS would be subject to a penalty equal to 25% of the value of the subsidy claimed, in addition to the requirement to repay in full the subsidy that was improperly claimed.
The usual treatment of tax credits and other benefits provided by the government would apply. As a consequence, the wage subsidy received by an employer would be considered government assistance and be included in the employer’s taxable income.
Assistance received under either wage subsidy would reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.
As part of the CEWS, employers can claim a 100% refund for the employer-paid part of contributions made on behalf of eligible employees who are furloughed (on leave with full or partial pay) for any full week in the claim period, and for which the employer is eligible to claim the CEWS for those employees.
These employer-paid contributions include: Employment Insurance (EI), Canada Pension Plan (CPP), Quebec Pension Plan (QPP), and Quebec Parental Insurance Plan (QPIP).
In general, an employee will be considered to be on leave with pay throughout a week if that employee is remunerated by the employer for that week but does not perform any work for the employer in that week. This refund would not be available for eligible employees that are on leave with pay for only a portion of a week.
This refund would not be subject to the weekly maximum benefit per employee of $847 that an eligible employer may claim in respect of the CEWS. There would be no overall limit on the refund amount that an eligible employer may claim.
For greater certainty, employers would be required to continue to collect and remit employer and employee contributions to each program as usual. Eligible employers would apply for a refund, as described above, at the same time that they apply for the CEWS.
Canada Emergency Commercial Rent Assistance (CECRA)
The federal government has reached an agreement in principle with all provinces and territories to implement the Canada Emergency Commercial Rent Assistance (CECRA) for small businesses. This program will result in lowering rent by 75% for small businesses that have been affected by COVID-19.
The program will provide forgivable loans to qualifying commercial property owners to cover 50% of three monthly rent payments that are payable by eligible small business tenants who are experiencing financial hardship during April, May, and June.
The loans will be forgiven if the mortgaged property owner agrees to reduce the small business tenants’ rent by at least 75% under a rent forgiveness agreement, which will include a term not to evict the tenant while the agreement is in place. The small business tenant would cover the remainder, up to 25% of the rent.
Impacted small business tenants are businesses paying less than $50,000 per month in rent and who have temporarily ceased operations or have experienced at least a 70% drop in pre-COVID revenues. This support will also be available to non-profit and charitable organizations.
Applications will be open beginning on May 25, 2020. More information on how to apply with CMHC for CECRA, as well as FAQs, is available here: https://www.cmhc-schl.gc.ca/en/finance-and-investing/covid19-cecra-small-business