COVID-19 Financial Measures
The Covid-19 pandemic’s impact on Canada has been intensifying daily. We at Hendry Warren LLP have been working with our clients since the crisis began to provide advice on how to weather this storm.
Some businesses are experiencing a significant drop in revenue and a slowdown in the collection of customer receivables. With a significant reduction in cash inflows, many entities are responding by taking steps to reduce cash outflows by curtailing capital purchases, deferring the payment of loan obligations and reducing expenses. Some organizations particularly in the retail and restaurant sectors are finding their cash flow is being strangled by revenues that are close to zero while their overhead and labour costs continue.
Employees are the backbone of a successful business and we know that many business owners are agonizing over the impact their difficult decisions will have on their employees. Decreases in revenue and sluggish collection of amounts owing to the business have already forced some organizations to lay-off employees to shore-up operational cash flow, with a view to promoting the survival of the business and a faster recovery when this crisis ends.
The Federal government appears to be well aware of this issue and announced coordinated measures to financially assist employees and employers during the COVID-19 crisis. The package of financial assistance that includes $27 billion of aid to employees and businesses, $55 billion of tax deferrals and in addition liquidity measures to promote the continued flow of capital from Canada’s financial institutions. In summary form these measures include:
- A wage subsidy to small and medium sized businesses, non-profit organizations and charities to encourage them to continue to employ their staff. The subsidy is equal to 10% of wages paid for 3 months to a maximum of $25,000 per business with a cap of $1,375 per employee. The announcement did not include how to apply for this subsidy however we expect those details to be available shortly. We will continue to monitor announcements made by the Department of Finance and provide updates to our clients as they become available.
- The Employment Insurance (EI) system is being enhanced. The enhanced EI program will waive the waiting period for those in imposed quarantine and waive the requirement to provide a medical certificate to access EI sickness benefits.
- A new Emergency Care Benefit (ECB) is being introduced. The ECB will provide up to $ 900 bi-weekly for up to 15 weeks and provide assistance to self employed workers and others who are quarantined or sick with COVID-19 but do not otherwise qualify for EI sickness benefits. In addition, workers including the self-employed who are taking care of a family member who is sick with COVID-19 will be eligible to obtain assistance under the ECB. Finally, parents with children who require care or supervision due to school closures and as a consequence cannot work, can obtain a benefit under this program irrespective of whether they qualify for EI or not. The announcement today indicated that the ECB will be available in April of 2020 and can be applied for through CRA MyAccount, MyService Canada Account or by a toll-free number yet to be provided.
- The personal tax filing deadline has been extended to June 1, 2020. Further, the deadline to pay personal tax owing on 2019 income tax returns has been extended to September 1, 2020. No interest or penalties will accrue on such balances during the extension period. This relief also applies to instalment requirements for the 2020 taxation year in the extension period.
- The deadline to pay corporate income tax amounts that become owing under Part I of the Income Tax Act on or after March 18, 2020 has been extended to September 1, 2020. No interest or penalties will accrue on such balances during the extension period. This relief also applies to instalment requirements for the extension period. These measures will not impact the payment deadlines related to the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST).
- For older Canadians who are concerned about protecting their retirement funds, the mandatory annual withdrawal from Registered Retirement Income Funds is being reduced by 25%. This is in response to the substantial drop in equity markets over the past month.
- The federal government has been working with major chartered banks such that payments by individuals and small business for mortgages and consumer loans can be deferred or reduced. Finance Minister Morneau advised Canadians to contact their bank directly for further details. It is important to note that while the major financial institutions have agreed to a 6-month payment deferral, the amounts deferred will be added to the outstanding debt. Further there has been no commitment to waive interest on these loans.
- Export Development Canada (EDC) and the Business Development Bank (BDC) will be provided with $10 billion to provide further credit support for businesses.
So what does all this mean for your business? We believe that the focus of businesses should be to maintain cash flow for their businesses. Possible assistance in this regard includes:
- The federal government support initiatives are welcome news and we encourage our clients to take advantage of these benefits if eligible. You should monitor future federal government announcements about how to apply for the wage subsidy. We will endeavor to update our clients as relevant announcements are made.
- Monitor the BDC and EDC websites for further details on how to apply for these special loans.
- Although the deadlines with respect to the payment of corporate tax owing have been extended, no extensions to corporate tax filing deadlines have been announced, nor have any changes been made in respect of GST/HST deadlines. We recommend that all corporations continue to file their corporate income tax and GST/HST returns in a timely manner.
- Individuals who expect to receive income tax refunds or other social benefits should not delay the filing of their return to ensure that their refund is received as soon as possible and their entitlements for the 2020-21 benefit year are properly determined.
- Preserve cash flow where possible, including:
a) Contacting your banker to discuss the temporary deferral of loan payments.
b) Update your 2020 business income forecast and reduce income tax instalments where appropriate. If cash flow is particularly tight, you may consider further reducing your 2020 income tax instalments during the Covid-19 crisis with a view to catching up on the payments when business recovers. Note that CRA will charge interest on deficient instalments required after August 31, 2020.
Hendry Warren LLP is committed to supporting our clients during these difficult times. We will continue to monitor government announcements and pass them along to you. We will be posting these on our website when they are available.
Finally, please feel free to contact us directly to discuss your financial situation further. We are here for you.