Federal Economic Response Plan: Support for Businesses Announced March 18, 2020
1) Tax Payment Extension: Businesses may defer income tax amounts that become owing after March 18, 2020, and before September 2020. This applies to taxes owing as well as installments. No interest or penalties will accumulate during this period.
2) CRA Audit Activity: CRA will not initiate any GST or tax audits for the next four weeks.
3) Payroll Subsidies: A program is being set up to provide eligible employers a temporary wage subsidy for a period of 3 months. The subsidy will equal to 10% of the remuneration paid during that period, up to a maximum of $1,375 per employee and $25,000 per employer. Businesses will benefit from this support by reducing their remittances of income tax withheld on their employees’ remuneration. In order to qualify for this support, employers must be corporations that are eligible for the small business deduction as well as NPOs and charities.
4) Financial Assistance: Business Credit Availability Program. This program will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide $10 billion of additional support, largely targeted to small and medium-sized businesses.
Our Comments: The tax payment extension will aid businesses in managing liquidity in the near term, but an extension will not replace the lost revenue, which many small businesses have already seen and will continue to endure. This extension will not keep non-essential businesses running. For businesses in essential services, this will aid liquidity by keeping much-needed cash in the business.
The reason for the lack of CRA audit activity is that it will allow us, both accounting professionals and CRA staff, to focus on more immediate tasks like filing current tax returns or special projects at CRA. The government has already announced that the Emergency Care Benefit can be applied for by self-employed Canadians through each Canadian’s CRA online ‘MyAccount’ sometime in early April.
As we mentioned in our piece on the Temporary Income Support for Workers and Parents, the new ECB will pay Canadians without EI eligibility $900 bi-weekly for 15 weeks. It will not surprise us if CRA continues to be the mechanism through which the federal government injects money into the hands of Canadians during this recession.
In the past week, the government received over 500,000 EI benefit applications compared to 27,000 for the same week in 2019. The number of claims this week is likely to continue to grow as non-essential businesses are ordered to shut down by various public health officials across the country. The introduction of the Emergency Care Benefit was a pretty clear signal by the federal government that they were going to pursue a policy of ‘aggressive social distancing’ or what we might also call a ‘lockdown’. They are going to pay Canadians to stay home. The question is for how long this policy will be needed.
The Payroll Subsidies is a relatively underwhelming measure but will help provide some liquidity to businesses considered to be essential services. This will not have a large impact on employment as the government wants Canadians to be laid off so that it can pursue its policy of aggressive social distancing. At this time, it is somewhat uncertain exactly how the Business Credit Availability Program will work.