Our managing partner of Lohn Caulder LLP , Jason Nakano, has teamed up with Bruce Lindsay and Shane McMahon from OceanFront Wealth to speak about investment opportunities and tax subsidies related to COVID-19.
If you are a business owner and curious what your options are during COVID-19 please watch this presentation:
For further details about the Canadian COVID-19 subsidies available, please check out our dedicated page by clicking here.
The Federal Government continues to tinker with the specifics of their giant subsidy program for Canadian businesses. We are sending you information based on announcements made, to date. Draft legislation has yet to be released, so things are still in flux. But here is what we know at this time:
1. Corporations, partnerships, proprietors, charities and not-for-profit organizations of all size are eligible for a subsidy from the Government regarding their payroll costs, called the ‘Canada Emergency Wage Subsidy.’
2. To qualify for the subsidy, the entity must be able to prove a greater-than-30% decline in revenues, for the eligible periods March 15 through June 6, 2020, comparing revenues of March of 2019 to March of 2020 through May of 2019 to May of 2020, monthly. Those businesses who file monthly GST returns will already be set up to make this calculation, even though, as of today, they are almost a month away from the filing due date of the March 2020 GST return. Others who file less frequently, or who didn’t exist in March of 2019 will have more difficulty in making this calculation. Details are to follow for those businesses soon, we hope.
3. Starting from March 15, 2020, you can apply for a taxable subsidy for a maximum of 75% the first $58,700 of salary costs per employee, for a maximum of $847/week/employee. You might ask: why such odd numbers ? There’s no answer offered for that, but the weekly subsidy is calculated as 75% x $58,700 divided by 52 weeks.
4. What about the other 25% ? At this time, there is no apparent obligation for employers to ‘top up’ the wage by digging into their own pockets. Therefore, businesses can, if necessary, drop their payroll by 25% and have the Federal Government cover the entirety of their new, lower wage cost.
5. The Government only ‘encourages’ Canadian businesses to maintain payrolls at their previous levels, using their “best efforts” – there is no current obligation to do so.
6. If you have laid off employees for the simple reason that there is no work to be done (for example, restaurants and bars, or many others forced to close due to ‘social distancing’ and other requirements), then you cannot get a subsidy for them while they are laid off. Those workers may, individually, be eligible for the ‘CERB’ benefit, outlined below.
7. Wages for this purpose apparently include non-arm’s length wages, so long as they remain reasonable as to the amount paid. Therefore, owner-managers of wage paying entities should be able to include their own wages in the subsidy application.
8. Businesses must apply for the subsidy through a CRA portal that does not yet exist. It will be available in 3 to 6 weeks. Another up to 6 weeks could be needed to receive the funds – so your subsidy could be as much as 12 weeks delayed, from now. If you lack the finances to maintain payroll, even at a 75% level, then you won’t get a subsidy, or the subsidy you receive will presumably have to be repaid.
9. Since the online CRA portal does not yet exist, businesses have time to firstly calculate whether they have indeed suffered a 30% revenue loss, March 2020 vs. March 2019.
10. Those businesses that do not qualify for this new subsidy may continue to qualify for the previously announced wage subsidy of 10% of remuneration paid from March 18 to June 19, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Employers can reduce the remittance of payroll income tax according to their calculation of the amount of the subsidy.
11. Your business should register for direct deposit with CRA to ensure the funds are received on a timely basis. We encourage clients to register for “My Business Account” with CRA online to manage that.
There is another program aimed directly at persons who have been laid off, or who otherwise have lost their income. It is called the ‘Canada Emergency Response Benefit’ (CERB).
1. It also runs from March 15th, 2020, for up to 16 weeks, maximum. Applications will begin the week of April 6, 2020.
2. The CERB applies to workers who have stopped working due to COVID-19, are sick, are quarantined, giving care to someone with COVID-19, or who must stay home because they are parents of children who are sick or at home because of school and daycare closures, for at least 14 consecutive days in the initial 4-week period.
3. The CERB applies to wage earners, contract workers, self-employed persons and others not otherwise eligible for EI (Employment Insurance).
4. It is for a maximum of $2000 for a 4-week period ($500/week).
5. You will be able to apply online or by phone. We encourage clients to register for “My Account” with CRA online.
The Government of Canada has announced a small business lending program to provide greater access to capital. It is called the ‘Canada Emergency Business Account.’
1. Applications must be made through your financial institution.
2. The program will provide interest-free loans of up to $40,000 to small businesses and non-profits to help cover operating costs where their revenues have been reduced due to COVID-19.
3. Repaying the balance of the loan by December 31, 2022 will result in loan forgiveness of 25% (up to $10,000).
Please contact us for any additional information.
The Lohn Caulder Team
Dear Clients and Friends –
We at Lohn Caulder are still at work ! However, ‘work’ happens to be at 45 different locations across the city, all connected electronically on a secure communication system.
While there are some staff in our regular office, generally they are not accessible from the outside. Our building has been, more or less, ‘locked down’.
Please have patience during this difficult time. We hope to be as accessible as ever over the phone, or e-mail.
Here’s a video message from Jason Nakano, our managing partner, to bring you up to date:
Since the beginning of March, restrictions and measures related to COVID-19 have rapidly escalated. While the first stages focused on public health and safety, in very short order, businesses and personal finances began to be affected. It is clear that these challenges will become worse before they get better. In an effort to combat these effects, the Government of Canada released a series of financial measures in mid-March.
This newsletter summarizes selected government comments up to March 18, 2020.
Tax Return Due Date Deferral: The personal tax filing due date will be deferred until June 1, 2020. However, those expecting refunds or benefits (such as the GST/HST credit, Guaranteed Income Supplement and Canada Child Benefit) should file as early as possible. The government release encourages Canadians not to delay their filings in order to ensure their income-tested benefits are accurately computed.
Tax Payment Deferral: Taxpayers may defer, until after August 31, 2020, the payment of income tax amounts that become owing on or after March 18, 2020 (also including installments) and before September 2020. The government documents indicate that payment will be deferred “until after August 31, 2020”, which seems to imply payment will be due on September 1. No interest or penalties will accumulate on these amounts during this period.
Individuals Without Paid Sick Leave: For Canadians without paid sick leave (or similar workplace accommodation) who are sick, quarantined or forced to stay home to care for children, the government is:
Application for the Benefit will be available in April 2020, and require Canadians to attest (and continue to attest every two weeks) that they meet the eligibility requirements. Individuals can apply through CRA’s MyAccount, their My Service Canada Account, or by calling an automated toll-free number not yet released.
Longer-Term Income Support
Tax Payment Extension:
Businesses may defer, until after August 31, 2020, the payment of income tax amounts that become owing on or after March 18, 2020 and before September 2020. This relief would apply to tax balances due, as well as instalments. No interest or penalties will accumulate on these amounts during this period.
Other Payment and Filing Extensions: No comment was made about changing the filing and payments dates for payroll, GST/HST, and other non-income tax items.
CRA Audit Activity: CRA will not contact any small or medium businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. For the vast majority of businesses, the CRA will temporarily suspend audit interaction with taxpayers and representatives.
Liaison Officer Service: The Liaison Officer service is now available over the phone and will be customizing information by ensuring small businesses are aware of any changes such as filing and payment deadlines, proactive relief measures, etc.
Payroll Subsidies: The government is proposing to provide eligible small employers a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum of $1,375 per employee and $25,000 per employer. Businesses will benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.
Trust Filing Due Date Deferral: For trusts having a taxation year ending on December 31, 2019, the return filing due date will be deferred until May 1, 2020.
T3 Slips Submission Date: No specific statement was made regarding the deadline for filing T3 slips reporting income taxable to the trust beneficiaries.
Other Returns: Many taxpayers are required to file other tax and information returns. No mention was made of these, including partnership returns and NR4 reporting slips.
EFILE Signatures: In order to reduce the necessity for taxpayers and tax preparers to meet in person, effective immediately the CRA will recognize electronic signatures as having met the signature requirements of the Income Tax Act, as a temporary administrative measure. This provision applies to authorization forms T183 or T183CORP.
Individuals: Canada’s large banks have confirmed that this support will include up to a 6-month payment deferral for mortgages, and the opportunity for relief on other credit products. Banks have affirmed their commitment to working with customers to provide flexible solutions, on a case-by-case basis, for managing through hardships caused by recent developments. This may include situations such as pay disruption, childcare disruption, or illness.
Businesses:
Many of the measures listed above have only been announced recently (March 18, 2020) and are noted as requiring Royal Assent. In recent public comments, it was indicated that the opposition parties have promised their support to move these measures quickly, therefore, we can presumably expect draft legislation in the short term.
Over the next days and weeks, the specifics on these programs will be released. Most of the details for these initiatives will be released on one of these four webpages:
General: https://www.canada.ca/en/public-health/services/
diseases/2019-novel-coronavirus-infection/canadas-reponse.html
CRA: https://www.canada.ca/en/revenue-agency/campaigns/
covid-19-update.html
Travel: https://travel.gc.ca/assistance/emergency-info/financial-assistance/covid-19-financial-help
Employment and Social Development Canada: https://www.canada.ca/en/employment-social-development/corporate/notices/coronavirus.html
As the situation develops further, there may be additional government measures, or modifications to those already announced.
The preceding information is for educational purposes only. As it is impossible to include all situations, circumstances and exceptions in a newsletter such as this, a further review should be done by a qualified professional.
No individual or organization involved in either the preparation or distribution of this letter accepts any contractual, tortious, or any other form of liability for its contents or for any consequences arising from its use.
Hats off to our 2019 CPA Common Final Exam writers! Another 100% pass rate! We are so happy to have each of you on our team and we will support you as you move forward in the next phase of your career. Congratulations to Helen Wang, Lilian Tseng, Sophie Chaw and Bea Torrevillas!
Lohn Caulder LLP would like to congratulate Anthony Leong on becoming Partner of the firm this year! Way to go, Anthony!
Anthony obtained his Bachelors of Business Administration degree from Simon Fraser University in 2009. During his studies, Anthony majored in Accounting with a minor in Criminology. Anthony originally joined Lohn Caulder LLP as a co-op student in 2006. He began articling with the firm in 2010 and received his Chartered Accountant designation in 2012. Anthony has completed the CPA In-Depth Taxation Course.
Budget 2018 arrived on February 20, 2018. Minister of Finance, Carol James, announced that MSP premiums would be eliminated effective January 1, 2020 with the foregone tax revenue being offset by a new payroll tax: The Employer Health Tax (“EHT”). The EHT comes into force on January 1, 2019 and, as such, a year of transition is upon us.
Out with the old
Historically, BC residents have paid MSP premiums based on their annual adjusted net income with an income of over $42,000 resulting in a premium of $37.50, monthly in 2018. Notably, this was a 50 per cent reduction from 2017 when an individual with a similar income paid $75.00 per month.
Indeed, the shift of the burden away from the individual taxpayer had begun.
In with the new
Whereas MSP premiums are levied on individual residents of BC, the EHT is imposed on a business’ payroll and this is done on calendar year basis.
Employers with BC remuneration of $500,000 or less in a calendar year are exempt from the EHT.
Employers with BC remuneration of $500,000 or more in a calendar year must register for the EHT and are liable for the tax as follows:
An EHT of this magnitude means that a business will also be required to make quarterly instalment payments on June 15, September 15, December 15 and March 31 with the final payment being accompanied by the annual return. In fact, any payroll greater than $600,000 will result in the requirement to remit quarterly.
An Employer Health Tax Calculator is available on the Government of BC’s website, here: https:// forms.gov.bc.ca/taxes/employer-health-tax-calculator/#gf_41
Important dates
Registration for the EHT begins January 7, 2019.
If you are required to make instalments in calendar 2019, you must register by May 15, 2019.
All other employers required to register must do so by December 31, 2019.
Employers must file and pay their first EHT return by March 31, 2020.
The transition period – 2019
While MSP premiums were reduced in 2018 in anticipation of their elimination, the fact that the MSP will remain in-place until January 1, 2020 means that some employers may be liable for both the MSP and EHT for calendar 2019.
Talk with your advisor
Businesses should consider how they may be affected by the EHT in 2019 and plan accordingly. The factors involved are complex. However, your Lohn Caulder advisors are here to help you navigate through this transition, learn the rules and avoid unnecessary surprises.
Please contact Graham Caulder of our office if you have any questions regarding above information. Graham’s email address is grahamc@lohncaulder.com, and his direct line is 604-408-3074.
The Lohn Caulder Team
Lohn Caulder LLP is proud to announce a 100% pass rate on the Common Final Examination (CFE). We would like to congratulate Simon Tse, Tara Whitelaw, Greg Pow, and Simon Li on achieving this milestone. We look forward to your long and successful careers as Chartered Professional Accountants!!
Relative to the tax collection services of other countries, we have to say that Canada’s is among the best: competent, polite, and thorough. Sometimes (but rarely) they have to get tough with taxpayers over the phone – but that’s only at the collection stage, which thankfully is a stage unknown and unfamiliar to virtually all of our clients. Our mission is to make sure things never get that far.
It is, of course, quite common to hear about internet and telephone scams. We’re writing this bulletin to make you aware of a recent increase in the frequency, sophistication, and aggressiveness of these frauds.
Recently, we have had clients volunteer banking and/or credit card information to persons on the phone who claim to be from the Canada Revenue Agency. Those scammers make the pitch that immediate payment (often in the form of Bitcoin, or some other ‘questionable’ medium) must be made, else ‘serious consequences’ may ensue – maybe even a warrant issued for their arrest ! Sometimes, the scammer has a partner-in-crime whose purpose is to add authenticity to the call (even going so far as to showing differing caller i.d.’s on your telephone).
While the Canada Revenue Agency may annoy or scare some people, they are, in our experience, about as polite as you would expect Canadians (as a rule !) to be. If someone with a “bad attitude” were to call you claiming to be from the CRA, it’s your right to ask for their i.d., location or section number, and phone number. Then, verify the call by calling CRA back yourself (but NOT at the number they give you – use a general number for the CRA in your area).
But better still, have us make that call for you. That usually puts a stop to the whole charade.
The CRA has amassed a big library of examples of the types of false communications that Canadians have been getting. We think it would be very wise to check them out atwww.canada.ca/en/revenue-agency/corporate/security/protect-yourself-against-fraud.html
The Lohn Caulder Team
Believe it or not, it might have been. But the Budget released by Finance Minister Morneau on February 27th nevertheless levied a heavy blow to successful businesspeople across this country.
The Small Business Deduction: are its days numbered ?
The small business deduction (“s.b.d.”) sets the low rate of tax for active business profits earned by private corporations – in BC, that rate is currently 13% – admittedly, a very low rate.
Now, thanks to this Budget, it will drop even further: to 12%, and then 11% in 2019 (these rates factor in current BC tax, as well).
All that looks very good. But then: what can you do with the earnings retained inside the corporation ? The Government wants you to spend that money on things that will generate even more active business income. And if you do – no problem. But if you don’t want to do that, or if such a level of investment is not needed or appropriate in your circumstances, you have little choice but to accumulate the earnings, for long-term investment. Certainly, that’s nothing to be ashamed of, given the relatively poor opportunities for retirement savings that entrepreneurs have (RRSPs being the principal tool here). That’s a big contrast to the kinds of pensions that highly paid employees or Government employees – particularly cabinet ministers – get to enjoy.
And do not forget that the taxes levied to individuals on the eventual extraction of those accumulated profits has been increasing dramatically in the past few years – such extractions will generate taxes that the Government will rake in at a top rate of tax of either 49.8%, or 43.73% for ineligible dividends, 34.2% for eligible. That’s a big rake !
The new rules will also change the long-established method of dealing with corporate refundable tax (“RDTOH”), by making things much more complicated. In future, it will be necessary to specify whether dividends are intended to be paid out of “eligible RDTOH” or “ineligible RDTOH”. A new ordering rule will require companies to pay out ineligible dividends beforeeligible dividends. Since taxes are much higher on ineligible dividends, the Government wins again.
The plan has always been to structure extraction of funds at a pace that avoids, if possible, those high rates. And, to some extent, those opportunities will remain. However, recent developments in income tax disclosure, which includes the mandatory provision of asset holdings has provided the minions at the Department of Finance with a wonderful array of statistics as to the accumulating wealth of successful Canadians. And while the prospects of seeing these funds eventually pass out of these corporations encourages them, it seems they have grown impatient with the wait.
So, they have invented a new way to raise taxes on these funds in the meantime. The small business deduction for all private corporations will be eroded, starting for fiscal years that begin after December 31, 2018, by the income earned on the investment wealth inside the corporation, or by associated corporations (such as holding companies) under common control. No erosion of s.b.d. will occur until “adjusted aggregate investment income (aaii)” (a new term) exceeds $50,000 per year (recall some press recently that this presumes a 5% return on an investment portfolio of $1 million). Whatever – what counts is what investment income is actually realized. But once the $50,000 threshold is exceeded, the small business deduction shrinks at the rate of $5.00 for every dollar of investment income higher than that. So the s.b.d. completely disappears at passive income levels of $150,000, or more.
Obviously, the quantum of a corporation’s a.a.i.i. will be essential information. And it will, of course, add to the cost of calculating and filing tax returns.
Since no “grandfathering” has been offered (despite being promised by the Government in recent months), all those with investment portfolios that exceed, perhaps, $2 million or so at this time (again, the s.b.d. “grind” will be determined by actual, realized investment income) will no longer get the small business deduction.
The tax rate differential between the small business rate and the general business rate will be 15% in B.C. in 2018. This means a corporate tax increase of $75,000 per year to those successful corporations who are suddenly caught by this rule. Ouch !
Of course, there are also some traps in these rules, just to keep things interesting. One particularly sneaky trap is the inclusion of income from savings in a “non-exempt” life insurance policy in the definition of a.a.i.i. This type of information has, until now, seldom been needed by accountants in determining corporate taxes. No longer. Insurance companies and agents will have to be far more communicative and proactive than they have been in the past in order to assist in the preparation of annual corporate tax returns. Thankfully, most insurance policies sold these days are generally ‘exempt’.
Also, the passive income grind will be based on actual investment income realized and taxed in the year. So, if you have invested in various low-yielding assets, such as real estate or low-risk debt instruments, you may be able to keep your actual income fairly low, and perhaps under the limit. Investments in companies that do not pay dividends, but rely on capital growth, may become more desirable – or perhaps we will see more offerings of “dividend deferral” schemes in the investment market.
A useful exclusion from the “investment income” definition is for dividends received from connected corporations, which, thankfully, means that holding companies can still be put to their useful purpose of storing the money, in a place where it is hoped to be more or less safe from general business liability concerns.
Consider also what may happen in a year when you may have “re-balanced” your investment portfolio (perhaps on the suggestion of your investment advisor) and, just for one year, spiked up your investment income because of realized taxable capital gains ? Well, in the next year you could very well lose your s.b.d. If your money goes “quiet” in the next year, the s.b.d. could be reinstated, however.
And how will we manage the issue of “working capital”, and corporate savings for future business asset acquisitions ? Generally, until now, the Canada Revenue Agency has considered the interest earned on the deposit of monies kept for these purposes as active, not passive income. Since so much will hang on this determination in the future, suddenly a whole new level of uncertainty has crept into the management of taxes for corporations.
All of this, will, of course, play havoc with tax payment deadlines, as because those are directly affected by whether or not a corporation is entitled to the s.b.d. Prepare for a future in which unintended interest charges are levied by CRA at random times, and due to random events.
The whole process of Budget making has been under scrutiny for several months, since last summer’s rash and disturbing release of much more draconian measures. Thankfully, at least most of these have been scrapped. But a total lack of sympathy for the concerns of small business is strongly evident in the current Government’s proposals, its statements, and its proposed legislation.
Hidden away in the commentary were questions raised as to the need for the small business deduction, at all. So could this be the beginning of the end of the small business deduction ? Don’t count that out – there has to be something for future Budgets to tax !
© 2024 Lohn Caulder LLP. Privacy Policy
