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The federal government recently announced a new set of economic measures to help stabilize the economy during the COVID-19 pandemic. Outlined below are measures implemented by the federal government, along with expanded existing programs, that are designed to assist small, medium and large businesses facing financial challenges during the pandemic. Please be reminded that these programs are constantly evolving and it is necessary to receive professional advice to ensure you are apprised of the most current program specifics.
Changes to Work–Sharing Program
This program is designed to help employers and employees avoid layoffs when there is a temporary reduction (of at least 10%) in the normal level of business activity that is beyond the control of the employer. This measure provides income support to employees eligible for Employment Insurance (“EI”) benefits who work a temporarily reduced work week while their employer recovers. This program entails having a group of employees with similar job duties all agree to reduce their hours by the same percentage, between 10% and 60% of regular hours worked. The federal government introduced temporary special measures that extend the maximum duration of work-sharing agreements from 38 weeks to 76 weeks across Canada for those businesses affected by the downturn in business due to COVID-19. Other relieving measures include waiving the mandatory cooling period for employers who have already used the program, reducing the requirements for a recovery plan, expanding program eligibility to employers who have only been in business for one year, while eliminating requirements to produce certain sales / production data to qualify, and expanding program eligibility to employers who are government business enterprises and non-profits and staff who are essential to recovery.
Canada Emergency Wage Subsidy Program (“CEWS”)
To encourage businesses to retain their employees during the COVID-19 pandemic, Parliament convened on an emergency basis on April 11, 2020 to enact Bill C-14, which legislates the Canada Emergency Wage Subsidy (the “CEWS”). Details of this program were announced by the federal government on a rolling basis over the course of several news releases from March 25 to April 8, and more recently on May 15, 2020. Having received Royal Assent, Bill C-14 amends the provisions of the Income Tax Act (Canada) (the “Act”) to implement a wage subsidy program to provide eligible employers with 75% of the weekly remuneration they pay to their employees, up to a weekly maximum of $847, retroactive to March 15, 2020. The program was originally expected to end on June 6, 2020 to provide up to 12 weeks of subsidization; however, on May 15, 2020, the federal government extended the program to August 29, 2020 to provide a wage subsidy for up to 24 weeks to eligible employers.
Legislative amendments to the CEWS are expected to be forthcoming to implement various announcements released on May 15, 2020. Key details of the CEWS, as expected to be amended, are summarized in a Miller Thomson published article, updated on May 19, 2020. This article should be consulted for further information on the CEWS and its implementation.
Canadian Emergency Business Account (CEBA) Program:
This program provides 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. It is not available to registered charities. On May 19, 2020, the government announced that the program will be expanded to businesses that are 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; however modified qualifying criteria may apply (including having a payroll lower than $20,000).
The general eligibility criteria for the CEBA, include:
- The organization has a business account with its primary financial institution that was opened prior to March 1, 2020.
- The organization has a registered and operational business on or before March 1, 2020.
- The applicant for the CEBA has the ability and authority to bind the organization.
- Payroll expense of the organization is between $20,000 and $1.5 million, and the following information is provided: (i) the employer account number; (ii) employment income reported in Box 14 of the 2019 T4 Summary of Remuneration Paid; and (iii) a copy of the organization’s 2019 T4 Summary of Remuneration Paid (if requested).
- The loaned funds may only be used to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, insurance, debt payments and property tax.
- The expectation is that the $40,000 loan is interest-free. $10,000, which is 25% of the loan, is eligible for complete forgiveness if $30,000 is fully repaid on or before December 31, 2022. Unpaid amounts remaining after this date may be converted into term loans or credit lines, the availability and terms of which vary across financial institutions.
To qualify under the expanded eligibility criteria announced on May 19, 2020, applicants with payroll lower than $20,000 would need:
- 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
- eligible non-deferrable expenses between $40,000 and $1.5 million. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance.
Loan Guarantee for Small and Medium-Sized Enterprises
Export Development Canada (“EDC”) will provide funding to financial institutions so that they can issue new operating credit and cash flow term loans of up to $6.25 million each to small and medium-sized businesses. These loans will be 80% guaranteed by EDC, to be repaid within one year.
Co-Lending Program for Small and Medium-Sized Enterprises
The Business Development Bank of Canada (“BDC”) will work alongside financial institutions to co-lend term loans of up to $6.25 million each to small and medium-sized businesses. 80% of these loans will be provided by the BDC, with the remaining 20% by a financial institution.
Large Employer Emergency Financing Facility (LEEFF)
This program, announced on May 13, 2020, is intended to provide short-term liquidity assistance in the form of interest-bearing term loans to large Canadian employers who have been affected by the COVID-19 outbreak. The LEEFF program is designed to provide bridge financing to large Canadian employers to help these enterprises to preserve their employment, operations and investment activities until they can access more traditional market financing. LEEFF will be delivered through Canada Enterprise Emergency Funding Corporation (CEEFC), a subsidiary of Canada Development Investment Corporation, in cooperation with Innovation, Science and Economic Development Canada and the Department of Finance. The following are key terms and restrictions of this program:
- Eligibility – LEEFF will be open to large Canadian employers who :
a) have a significant impact on Canada’s economy, as demonstrated by, (i) having significant operations in Canada or (ii) supporting a significant workforce in Canada;
b) can generally demonstrate approximately $300 million or more in annual revenues;
c) require a minimum loan size of $60 million; and
d) are prepared to commit to minimizing the loss of employment and sustaining their domestic business activities, and demonstrate that funding under LEEFF forms part of their overall plan to return to financial stability.
Large for-profit enterprises in all sectors, except for those in the financial sector, can apply for funding under LEEFF. Certain not-for-profit enterprises, such as airports, could also be eligible. Companies that have been found guilty of tax evasion are not eligible under the program.
- Size/Principal Amount – The loan will be provided by way of two loan facilities: (i) an unsecured facility equal to 80% of the aggregate loan; and (ii) a secured facility equal to 20% of the aggregate loan amount. The minimum aggregate loan must be $60 million. The loan will be advanced in tranches over 12 months.
- Interest Rate – With respect to the unsecured facility, the interest rate is a cumulative 5% rate per annum, payable quarterly in arrears. At the one-year anniversary, the interest rate will increase to 8% per annum and each year thereafter it will increase by a further 2% per annum. Interest may be paid in-kind for the first two years of the loan. For the secured facility, the interest rate will be based on the interest rate of the borrower’s existing secured debt.
- Term – The unsecured facility will have a term of five years. The duration of the secured loan facility will match that of the borrower’s existing secured debt. The borrower may prepay the loan at any time without penalty.
- Compensation to CEEFC – If the borrower is a Canadian public company (or the private subsidiary of a Canadian public company), the borrower must issue to CEEFC warrants with the option to purchase the borrower’s (or parent public company’s) common shares totalling 15% of the principal amount or receive cash consideration equivalent to the value of the warrants. These warrants may be settled with the borrower prior to being exercised or sold to third-party buyers after the loan is repaid. Borrowers without publicly-traded shares will be required to provide CEEFC with compensation in the form of additional fees at a level commensurate to the value of the warrants for public company borrowers.
- Restrictions – The borrower will be subject to certain operating requirements while the loan is outstanding, including: (i) prohibitions on dividends, capital distributions and share repurchases; and (ii) certain executive compensation restrictions (such compensation restrictions apparently include a compensation limit of $1 million for executives of the borrower until the loan is paid off).
- Covenants – The borrower will be subject to certain affirmative covenants while the loan is outstanding, including:
- performance of obligations under existing pension plans;
- performance of material obligations under applicable collective bargaining agreements; and
- publishing an annual climate‑related financial disclosure report, highlighting how corporate governance, strategies, policies and practices will help manage climate-related risks and opportunities; and contribute to achieving Canada’s commitments under the Paris Agreement and goal of net zero by 2050.
- Governance – CEEFC will reserve the right to appoint an observer to the board of the borrower.
- Conditions – Certain conditions will need to be satisfied before the initial advance of funds, which will include certain waivers from existing lenders or bondholders of the borrower.
New Tax Filing and Payment Flexibility
The federal government has deferred a number of tax filing and payment deadlines, as follows:
Corporations that would otherwise have a filing due date after March 18 and before June 1, 2020, would have a deferred filing due date of June 1, 2020. Corporations that would otherwise have a filing deadline in June, July or August have an extension to September 1, 2020. Corporations may also defer the payment of any income tax amounts (tax balances, instalment) that become owing on or after March 18, 2020 and before September 1, 2020, until September 1, 2020 without interest or penalties.
The due date for the trust return (including associated T3 reporting) for trusts with a year-end of December 31 is postponed to May 1, 2020. Trusts that have a filing due date in April or May, have a deadline extension until June 1, 2020. Trusts that normally have a filing due date in June, July or August 2020 now have a filing extension to September 1, 2020. Trusts may also defer the payment of any income tax amounts (tax balances, instalment) that become owing on or after March 18, 2020 and before September 1, 2020, until September 1, 2020 without interest or penalties.
The due date for filing for self-employed persons and their spouses remains June 15, 2020. However, no late filing penalties will be levied if the returns are filed prior to September 1, 2020. The payment deadline of any income tax amounts (tax balances, instalment) has been deferred to September 1, 2020. If the 2019 tax return is not assessed in time, benefits and/or credits for the July to September 2020 payments will be based on information from 2018 tax returns. Once the 2019 return is filed, it is possible that the CRA will make adjustments based on the updated income information.
The due date for 2019 information returns (T5013) for partnerships has been extended to May 1, 2020.
The due date for information returns to be filed by charities (T3010), if otherwise due between March 18, 2020 and December 31, 2020, has been extended to December 31, 2020.
Part XIII Returns
The due date for filing NR4 information returns has been extended to May 1, 2020, however the tax remittance continues to be due on the 15th of the each month following when an amount was paid or credited to a non-resident.
No extension has been provided for payroll remittances.
GST, HST duties and import tax amounts will be deferred until June 30, 2020.
Existing Supplemental Unemployment Benefit Plan (“SUB”)
Although the SUB has not been expanded by COVID-19 measures, it may continue to remain a useful tool for employers facing financial difficulty or who may not otherwise qualify for the wage subsidy. This plan allows an employer to top up employees’ EI benefits during a period of unemployment due to a temporary layoff for, among other things, sickness and quarantine. The weekly SUB payment plus the weekly EI benefit cannot exceed 95% of the employee’s normal weekly remuneration. Any Canadian employee can be subject to a SUB and approval from Service Canada must be obtained.
Miller Thomson is closely monitoring the COVID-19 situation to ensure that we provide our clients with appropriate support in this rapidly changing environment. For articles, information updates and firm developments, please visit our COVID-19 Resources page.