COVID-19: Canada Emergency Business Account (CEBA) upcoming deadline
As businesses continue to adapt to new industry landscapes brought on by COVID-19, the Canadian government has partnered with over 220 financial institutions across Canada to allow for interest-free relief loans to small businesses and not-for-profit organizations.
The Canada Emergency Business Account (CEBA) allows eligible businesses to receive interest-free loans of up to $60,000, with up to 33% of the loan forgiven if the outstanding balance is repaid before December 31, 2022 (to a maximum of $20,000).
The CEBA has recently been expanded from $40,000 to $60,000 to provide more relief to eligible businesses. If you previously applied for the $40,000 loan, you can apply for the $20,000 expansion through the same financial institution as you had for the original loan, even if you had already repaid the original $40,000 loan.
The deadline to apply for the $60,000 CEBA loan or the $20,000 expansion is March 31, 2021.
As of February 11, 2021, 831,655 businesses have been approved for the CEBA nationwide, and a total of $42.85 billion has been loaned.
When applying for the CEBA, businesses are categorized into two groups: payroll stream and non-deferrable expense stream.
Payroll stream applicants are businesses with employment income paid in the 2019 calendar year between $20,000 and $1,500,000.
Non-deferrable expense stream applicants have employment income paid in 2019 of $20,000 or less.
To apply, a business must:
- Have an active CRA business number with an effective registration date on or before March 1, 2020;
- Have an active chequing/operating account with the lender when they apply;
- Have not previously applied for and received support under CEBA and will not apply at another financial institution in the future; and
- Intend to continue to operate or to resume operations.
If you fall under the non-deferrable expense stream, there is an additional set of criteria you must meet when applying for the CEBA.
The business must have:
- Eligible non-deferrable expenses between $40,000 and $1,500,000 in 2020; and
- Filed an income tax return with the CRA with a tax year ending in 2019 or 2018.
Eligible non-deferrable expenses are generally defined as expenses that were already incurred in January and/or February of 2020, or are payable as a result of a legal or contractual obligation as at March 1, 2020 and cannot be deferred beyond 2020 even during a shutdown.
Eligible non-deferrable expense categories include:
- Wages and other employment expenses to independent (arm’s length) third parties;
- Rent or lease payments for real estate or capital equipment used for business purposes;
- Payments incurred for insurance-related costs, property taxes and for telephone and utilities in the form of gas, oil, electricity, water and internet;
- Payments for regularly scheduled debt service;
- Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the borrower; and
- Payments incurred for materials consumed to produce a product ordinarily offered for sale by the borrower.
The CRA states that these expenses will be subject to verification and audit.
Applying for the CEBA
Applying for the CEBA will look slightly different for each individual business, as a wide variety of financial institutions work with the Canadian government to provide these loans. There are also different application processes depending on whether the business falls into the non-deferrable expense stream or the payroll stream.
If the business falls into the payroll stream, it should contact its primary financial institution and complete the loan application. The Government of Canada will assess the application and inform the financial institution of the approval or decline of the loan.
If the business falls into the non-deferrable expense stream, it must follow a three-step application process:
- Utilize a pre-screening tool that provides a non-binding indication of the business’ eligibility. If the pre-screening tool declines the business at this step, it can still apply for the CEBA and will need to complete the next steps.
- Initiate applications at the primary financial institution where the business holds its operating/chequing account. The financial institution will move applicants to step 3.
- Following the initial application in step 2, applicants are then directed to a CEBA-specific website to provide supporting documentation of the 2020 eligible non-deferrable expenses.
Businesses can check their application status here: https://status-statut.ceba-cuec.ca/.
The following are the loan details for both the original loan and the $40,000 extension:
Interest is charged at 0% per annum until December 31, 2022 and 5% per annum beginning January 1, 2023, with payment frequency determined by the business’ financial institution.
Repayments and maturity
There is no principal repayment required before December 31, 2022. If it is still outstanding past this date, only interest payments are required. The full principal is due December 31, 2025.
There are different guidelines for debt forgiveness on the loan based on the value of the loan.
Loans of $40,000 or under:
Repaying the outstanding balance by December 31, 2022 will result in loan forgiveness of up to 25%. A borrower who received the full $40,000 CEBA loan and repaid $30,000 by December 31, 2022 would be entitled to $10,000 in forgiveness.
Loans between $40,000 to $60,000:
Repaying the outstanding balance by December 31, 2022 will result in loan forgiveness of up to 33%. A borrower who received the full $60,000 loan and repaid $40,000 by December 31, 2022 would be entitled to $20,000 in forgiveness (25% of $40,000 and 50% of $20,000). This applies if a business already received the original $40,000 loan and then subsequently received an expansion at a later date. A borrower cannot claim any loan forgiveness if the $40,000 is not repaid by December 31, 2022.
Businesses the repaid the original $40,000 loan and later applied for the $20,000 expansion would be entitled to loan forgiveness up to 50% on the $20,000 if the outstanding balance is repaid before December 31, 2022.
If you think your business may be eligible for the CEBA, or have any tax-related COVID-19 inquiries, the Tax group at Fuller Landau is ready to answer your questions.
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