As the corporate tax filing deadline approaches for corporations with a December 31 year-end, businesses that have received the Canada Emergency Account Loan for Businesses (CEBA) in 2020, should be aware of the tax implications of the forgiveness portion of the loan.
The CEBA was launched on April 9, 2020 to support businesses during the COVID-19 pandemic. Companies could benefit from CEBA loans under the following conditions:
- If a business has borrowed $ 40,000 or less and the company fully refund the outstanding loan (other than the amount that can be canceled) by December 31, 2022, then 25% of the loan (up to $ 10,000) will be forgiven
- If a business has borrowed more than $ 40,000 until $ 60,000, and the business repays the outstanding loan balance (other than the forgivable amount) in full by December 31, 2022, followed by a one-time loan forgiveness installment, up to $ 20,000, will be provided on the basis of the following weighted rate:
- 25% at first $ 40,000; more
- 50% on the upper uprights $ 40,000 and up to $ 60,000.
If the business does not fully repay the outstanding loan balance (other than the amount eligible for forgiveness), no discount will be given.
It is important to note that the non-repayable portion of the loan must be included in the taxpayer’s income in the year the loan is received. in accordance with paragraph 12 (1) (x) of the Income Tax Act (the “ITA”), unless the taxpayer elects under subsection 12 (2.2) of the ITA to reduce the amount of a disbursement or expense that is made or incurred by the taxpayer. This was recently confirmed by the CRA in technical interpretation 2020-0861461E5.
An election under subsection 12 (2.2) is made by means of a signed letter accompanying the applicable income tax return that includes the following: (a) the subsection under which the election is made; b) the amount chosen; and (c) the amount of the aid and the date on which it was received. Generally, this election must be filed no later than the date on which the taxpayer’s income tax return must be filed for the year in which the loan is received or the following year if the expenditure is made or incurred during the Next year.