Over the past several weeks we have seen a series of announcements and press releases from the Prime Minister and others regarding a variety of measures to assist entrepreneurial businesses through this unprecedented challenge. While it is encouraging that our governments recognize the severity of the impact these events will have on small and medium size companies, and are taking a proactive approach, the lack of initial detail has been frustrating.
The devil, as always, is in the details, and many of the relief measures announced may not be as widely applicable, or as helpful in a practical way as had been assumed from the language in the original announcements.
This is the 75% wage subsidy announced by the Prime Minister in his daily briefing last week. The response to the announcement was universally positive – this was to be the game changer in terms of being able to retain employees who might otherwise be laid off.
The details of the subsidy were released yesterday. The good news is that this subsidy applies broadly, to all taxable corporations regardless of size and also to individuals and partnerships. The less good news is that the rules around eligibility are complex, arbitrary and restrictive.
The subsidy applies to remuneration paid to employees between March 15 and June 6, and for a given employee is generally equal to 75% of the remuneration paid to a maximum benefit of $847 per week.
In order to qualify for the subsidy your business must have experienced a drop in revenue of at least 30% compared with the same period the prior year. The program sets out three “Claiming periods”, each with a “Reference Period” for eligibility as set out below:
|Claiming period||Reference Period|
|Period 1||March 15 – April 11||March 2020 over March 2019|
|Period 2||April 12 – May 9||April 2020 over April 2019|
|Period 3||May 10 – June 6||May 2020 over May 2019|
In other words, if your March 2020 revenue is at least 30% lower than your March 2019 revenue, you qualify for the subsidy for remuneration paid to your employees between March 15 and April 11. If it is 29% lower, you do not qualify. It is possible you may qualify for one but not all of the periods.
Details of the application process are to follow, but unlike the previously announced 10% wage subsidy, this subsidy will come in the form of a cheque, rather than as a reduction of a pre-existing government remittance obligation.
This subsidy will undoubtedly be helpful to many businesses, particularly those in the front line of this debacle, such as restaurants and hospitality, where revenues have gone to zero, but some employees have been retained for essential roles. However, even in these industries It remains to be seen whether it is a sufficient incentive to call back previously laid off employees or retain employees who do not have productive work when there is still a 25% cost to incur.
For many other businesses this subsidy will be of limited or no assistance. There are a significant number of companies where revenues may not drop by 30%, but cash flow over the next three months will drop by far more than 30%. It is cash flow that keeps people employed, not the revenue figure that is posted to your books each month.
If you were on a growth trajectory over the past year and have been hiring new employees, you might experience a revenue drop of far greater than 30% month over month, but not necessarily compared with the same month in 2019 and, therefore not qualify for the subsidy.
There will also be practical issues: how fast can they actually get the cash into the hands of the applicants? If the funds are required in order to pay the employees, this must happen very quickly. The program will be less successful if employers are required to bridge the payroll while they wait for the subsidy to arrive.
I applaud the initiative and rapidity of the governments response to this crisis, but in terms of a wage subsidy that will be meaningful, a more universal and simplified approach is required.
This program provides for a $40,000, government guaranteed, interest free loan administered through your regular financial institution. If the loan is fully repaid on or before December 31,2022, $10,000 will be forgiven. If you cannot repay the loan by December 31, 2022, it is converted into a three year term loan at an interest rate of 5%.
Corporations will qualify for this program if they carry on an active, operating business and had an annual payroll of between $50,000 and $1 million in the 2019 calendar year. The applications will open the week of April 6th.
This is an attractive opportunity to access funds quickly, with the bonus of forgiveness, however, the arbitrary payroll threshold for eligibility will still exclude many corporations in need of immediate liquidity.
Measures announced by the Canada Revenue Agency to extend the tax filing and payment dates in many instances are extremely helpful. However, again the relief is not as generous or as universal as many taxpayers assume and some caution is required in order to avoid a later surprise when you receive your notice of assessment.
The extension to the filing dates were covered in our previous communication, which is posted on our website at www.farnhamco.ca. The relief in terms of the actual payment of tax is somewhat more nuanced.
The language in the press release states that the payment of any income tax amounts that become owing on or after March 18 and before September 2020 may be deferred until August 31, 2020. If you were required to make corporate or personal tax instalment payments prior to March 18, those amounts became owing before March 18. Therefore, if you find yourself with a corporate or personal tax liability that arose as a result of a failure to make the required instalments, there is no relief from interest on that balance, and you will be charged interest if you wait until August 31 to make the payment.
As an example, assume a corporation has a December 31, 2019 year end. Its taxable income is less than $500,000 and so it has until March 31, 2020 to pay any balance owing before interest is assessed. The balance of tax payable is $50,000. It was supposed to make $40,000 in corporate tax instalment payments in 2019 but in fact made no instalment payments. How does the proposed payment relief apply?
Interest will be calculated and charged from March 31 on the $40,000 that should have been paid in instalments, because those instalments were due before March 18. There will be no interest charged on the remaining $10,000 owing until after August 31, 2020. The corporation still has to file its tax return by June 30, 2020.
The same applies in the personal tax context. While the deadline for filing has been extended to June 1, if you have a balance owing on your tax return, some amount of which is a result of not making the correct personal tax instalments, the interest relief will not apply to that portion of the obligation.
In other words, the relief in terms of paying taxes until August 31, 2020 really only applies in most cases where the income, and corresponding taxes are higher than the prior year and exceed any instalments you were required to pay.
The relief from the requirement to make ongoing instalment payments will be very helpful in preserving cash flow. For corporations, there will be no interest charged if you do not make instalments after March 18 and up to August 31. For individuals, this means you can skip your June instalment. This does not mean you should run out and spend the money – the piper has to be paid, and it is still unclear how these deferred instalments are expected to be caught up after August 31.
For many companies the payment of monthly or quarterly HST is a significant cash flow item. CRA is allowing businesses to defer until June 30 the payment of HST as well as customs duties. The deferral will apply to GST/HST remittances for the February, March and April 2020 reporting periods for monthly filers; the January 1, 2020 through March 31, 2020 reporting period for quarterly filers; and for annual filers, the amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year.
For GST and customs duty payments for imported goods, deferral will include amounts owing for March, April and May.
Information on this subsidy was included in our previous communication. This subsidy exists along side the Canada Emergency Wage Subsidy and will be helpful for employers who do not qualify for the more generous program.
The temporary wage subsidy is equal to 10% of the remuneration paid from March 18 through June 19, to a maximum of $1,375 for each employee and to a maximum of $25,000 per employer.
An appealing element of this subsidy is that the funds are available to you immediately through a reduction in your regular payroll remittances. The first remittances that qualify for the reduction will be paid in the next two weeks and so you should be looking at the calculations right now. We are happy to provide any assistance should you require it.
WSIB Ontario recently announced that all businesses can defer the payment of their WSIB premiums without interest or penalty to August 31, 2020.
Businesses report and pay WSIB premiums based on remuneration paid for the previous full month or quarter, for example March 31 reporting and payment obligation covers the period of February 1-29. The following payments are eligible for deferral:
The Ontario Government has announced that the Employer Health Tax exemption will be increased for 2020 from $490,000 to $1 million. For companies with a payroll in excess of $1 million this represents an annual savings of almost $10,000.
Also announced is a five-month relief period for Ontario businesses who are unable to file or remit select provincial taxes on time due to the special circumstances caused by COVID-19 in Ontario. Beginning April 1, 2020, penalties and interest will not apply to Ontario businesses that miss any filing or remittance deadline under select provincial taxes. This will continue for a period of five months and the relief will be automatic – there is no need to apply or to notify the Ministry of Finance. Businesses are required to file any late returns or remittances by the end of the relief period, August 31, 2020.
The following provincial taxes are included in the relief period:
The speed at which various levels of government have reacted to the crisis in the context of the impact on entrepreneurial business is heartening. However, more will be required and the narrowly targeted and arbitrary eligibility requirements of some of these programs will exclude many businesses desperately in need of relief.
If you find that your own organization is falling through the cracks in terms of qualifying for these relief measures, I would encourage you to communicate this to your MP, MPP and City Councillor. There is obviously a recognition of the issues and a desire to help, but that is only possible in a meaningful way if the need is well understood.
Take advantage of the relief measures that do apply. This is going to go on for some time yet and we will all need all the assistance we can get. Let us know if we can help.