Tax Implications of COVID-19 related Government Benefits for Businesses

COVID-19 certainly changed our lives in 2020 in many ways, not the least of which has been its economic impact. Many businesses had to close their operations for extended periods of time, while others had to revamp how they operate in order to survive the pandemic. Canadian Government offered several relief programs for businesses and individuals to help them survive during this period.  As we start the new year with the hope that lockdowns and vaccines will curb the spread of CIVID and life will return to normalcy, it is important to keep account of the funds our businesses received under different relief programs and be aware of their income tax implications.

  • CEBA (Canada Emergency Business Account) started as a $40,000 loan available to businesses meeting a certain qualification criterion. 25% or $10,000 of this loan amount was forgivable to businesses if they returned the balance or $30,000 of this loan by December 31, 2022. The loan amount was further increased by $20,000 on December 4, 2020, to a total of $60,000 for eligible businesses. The deadline for application has also been changed to March 31, 2020. The additional amount of $20,000 is 50% forgivable if the loan is paid back by 12/31/2022. The forgivable portion of the loan is taxable to the recipient in the year the loan is received. If you received the $40,000 in 2020, you should include the forgivable portion of the loan of $10,000 in 2020. If you were unable to pay the loan back by 12/31/2022 and had to pay the full loan amount back, you could deduct the forgivable portion of the loan previously included in income when the loan was received.
  • CEWS (Canada Emergency Wage Subsidy) received by a qualifying business during a taxation year has to be included in the taxable income for the year in which it was received.
  • TWS (Temporary Wage Subsidy) received has to be included in taxable income for the year in which it was received, similar to CEWS.
  • CERS (Canada Emergency Rent Subsidy) has been available to qualifying businesses and it will be included in the income of the recipient in the qualifying period which it relates to, and not in the period it was received in.

As a business, if you have received government relief from one or more sources, it is highly recommended that you contact your CPA to determine their tax implications for your business. You can reach us by email at msheikh@moaaz.ca.

Moaaz Sheikh, MBA, CA, CPA

Moaaz Sheikh obtained his CA designation in 1999 while working for PwC in Toronto. He subsequently worked for Magna International as a cost estimator and program accountant for over 3 years. Moaaz has an MBA with a specialization in marketing and has extensive experience working in his family’s business. This unique background enables Moaaz to better understand his client’s Taxation, Accounting, and Business needs.

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