The deadline to apply for the Canada Emergency Business Account (CEBA) has been extended to December 31, 2020. Additionally, businesses and not-for-profits that continue to be seriously impacted by the pandemic will have access to an additional $20,000 of financing, on top of the original loan of $40,000. For those that qualify for the increase, half of the $20,000 increase drawn down would be forgivable if repaid by December 31, 2022. Details of the limit increase have not been released yet. 

 

There is a new call centre that you can contact if you have submitted an enrollment request for CEBA and have the following questions:

You can contact the CEBA Call Centre at 1-888-324-4201, and the hours are Monday to Friday from 8:00 am to 7:00 pm MST. 

 

The link to the CRA website explaining the CEBA loan is here: https://ceba-cuec.ca/

The RRRF is a new program that provides funding to western Canada small and medium sized enterprises who do not qualify for the $40,000 CEBA loan. The RRRF program has similar repayment terms when compared to the CEBA, and will forgive 25% of the loan if it is repaid by December 31, 2022. Some examples of businesses that will benefit from this program are pre-revenue firms, businesses without salary employees, and businesses that pay their owners with dividends.

The RRRF also offers additional support for women led businesses and businesses that are not located in a metropolitan region. These specific businesses will receive additional support through the “RRRF – Women’s Enterprise Initiative Stream” and the “RRRF – Community Futures Stream.” If you are interested in learning more, or would like to see if you are eligible, follow this link:

If you were eligible to receive the TWS (10% Temporary Wage Subsidy), you will need to fill out and submit Form PD27, 10% Temporary Wage Subsidy Self-Identification Form for Employers, for each of your payroll program (RP) accounts. The CRA will use the information from your Form PD27 to reconcile the TWS on your payroll program (RP) accounts.

You are encouraged to complete Form PD27 and submit it to the CRA as soon as possible to avoid receiving a discrepancy notice at the end of the year. You do not need to wait until you file your T4 information return. The following is a link to the form which includes more information:

CEWS – Canada Emergency Wage Subsidy

For a full list of all programs available including the ones listed above and more can be found here:

The tax on split income (TOSI) can subject various income sources, with taxable private corporation dividends being the most common, to personal tax at the highest marginal rate. One of the exceptions from TOSI occurs when the income recipient is actively engaged in the business. An individual will be deemed to be actively engaged in any year in which the individual works in the business at least an average of 20 hours per week during the portion of the taxation year that the business operates.

In an August 6, 2019 French Technical Interpretation, CRA opined that days that an individual is paid for time that they do not actually work (such as statutory holidays, sick days, and annual vacations) should not be considered hours worked for the computation. For example, if an individual is paid for five days for a week, but only actually works four days due a statutory holiday on one of the days, only four days of work should be considered in the computation.

While it is a question of fact, CRA stated that it is possible for this exception to be available in this scenario. Consideration should be given to the ongoing nature and labour requirements of the business for the particular year. In general, whether an individual is actively involved in a business will depend on the time, work and energy that the individual spends on the business.

The more an individual is involved in the management or day-to-day operations, the more likely they will be sufficiently involved. 

Over the last few years, CRA has focused on purchases and sales within the real estate sector. They are reviewing transactions for several items, such as:

One method for reviewing such transactions is by requiring taxpayers to respond to a detailed questionnaire. The questionnaire covers items such as:

On June 25, 2020, CRA issued a solicitation for engaging one or more third-party suppliers to provide “U.S. real estate and real property data where a Canadian resident is the owner or party to the purchase, sale or transfer” back to, at a minimum, January 1, 2014 with ongoing provision of new data on a monthly basis.

While the normal age to begin receiving regular CPP is 65, individuals can apply to start receiving earlier at a cost, or later for a greater benefit:

The decision as to when to commence CPP payments can be very complex, with extensive variables to consider, primarily related to personal factors and economic scenarios. While 95% of Canadians have consistently taken CPP payments at normal retirement age (age 65) or earlier since the CPP introduced flexible retirement in the 1980s, a July 27, 2020 report (The CPP Take-Up Decision) by the Canadian Institute of Actuaries and the Society of Actuaries examined whether that is always the best option. 

The report compared receiving CPP commencing at age 65 against pulling funds from RRSP/RRIF savings to replace the CPP Payments and then commencing CPP at age 70. The two primary factors which influence the decision are life expectancy and rate of return. In particular, the report noted the following:

On September 3, 2020, CRA announced that, effective January 1, 2020, the rates allowable under the simplified method related to travel for medical expenses, moving expenses, and the northern residents deduction, as well as meal claims for transport employees, increased to $23 from $17 per meal, for a total of $69/day. This is also the amount that CRA has stated is reasonable for a meal and therefore the non-taxable portion of an overtime meal or allowance, or certain other travel allowances provided to employees.

CRA has previously noted that reasonable allowances paid by employers for meal costs incurred while travelling is a question of fact. Reasonable allowances are generally not taxable. Although they would generally accept $23 per meal (including taxes), higher amounts could be reasonable, provided they are supported by relevant facts, including:

CRA has also indicated previously that they consider the meal allowances based on the National Joint Council rates (which well exceed $69/day but are currently less than $23 for breakfast or lunch) to be reasonable for the meal portion of these travel allowances. However, these Council rates are not accepted for the other purposes mentioned above.

In a July 23, 2020 Tax Court of Canada case, at issue were a number of expenses claimed by the taxpayers (a corporation and its sole individual shareholder) in respect of the business of selling financial products and providing financial planning advice. CRA denied various expenses spanning 2007 and 2008 and assessed many of them as shareholder benefits. That is, the amounts were taxable to the individual shareholder and not deductible to the corporation.

CRA also assessed beyond the normal reassessment period on the basis that the taxpayers made a misrepresentation attributable to neglect, carelessness, wilful default or fraud. They also assessed gross negligence penalties which is computed as the greater of 50% of the understated tax or overstated credits related to the false statement or omission, and $100.

In dismissing the taxpayer’s argument, the Court found that the vast majority of expenses reviewed were personal in nature and denied the deduction. The Court also found the vast majority of denied expenses to be a shareholder benefit. These expenses were not, by and large, expenses a reasonable employer would otherwise pay for the benefit of an arm’s length employee. The taxpayer, through his unfettered control, chose not to pay salaries or bonuses but rather to deduct the disallowed expenses from the corporate receipts and never report or ascribe any amount of benefit or employment income to himself.

The Court upheld CRA’s assessment beyond the normal limitation period as well as gross negligence penalties, noting:

The Court stated that the gross negligence penalties exist for these such situations: sophisticated taxpayers must appreciate that using corporate structures to mask inappropriate deductions and shield personal income from tax should not be done.

The result of these inappropriate deductions was effectively triple taxation – corporate tax on disallowed deductions, personal tax on shareholder benefits, and a 50% gross negligence penalty on both the corporate and personal taxes. It would have been much cheaper had the taxpayer taken additional salaries or dividends, and paid the additional taxes up front, rather than running personal expenses through the corporation.

Directors can be personally liable for employee source deductions (both the employer and employee’s portion of CPP and EI, and income tax withheld) and GST/HST unless they exercise due diligence to prevent failure of the corporation to remit these amounts on a timely basis. As many businesses are struggling with cashflow, it may be attractive to direct these amounts held in trust for the government to satisfy other creditors, such as suppliers. However, in doing so, directors may unknowingly expose themselves to personal liability if the entity is not able to remit the required source deductions and GST/HST.

The following recent court cases highlight some of the issues related to this liability exposure:

Care should also be provided to properly resign as a director to limit future exposure. CRA must issue the assessment against the directors within two years from the time they last ceased to be directors.

In another July 23, 2020 Tax Court of Canada case, failure to comply with all resignation requirements under the relevant provincial corporate law meant that the director’s resignation was not legally effective, even though he had submitted a signed letter of resignation to the corporation. As he was still a director, he was still personally liable for unremitted GST/HST and source deductions.