COVID-19: Government Initiatives for Small Businesses
A brief summary of the measures the government has put in place to target small business
To support businesses that are facing revenue losses and to help prevent lay offs, 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 subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to 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.
Businesses and individuals may also defer, until after August 31, 2020, the payment of any income tax amounts that become owing, and installments, without interest and penalties
Further, the Canada Revenue Agency will not contact any small or medium (SME) businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. For the vast majority of businesses, the Canada Revenue Agency will temporarily suspend audit interaction with taxpayers and representatives.
The Liaison Officer will now provide services over the phone and will be customizing information to ensure small businesses are aware of any changes such as filing and payment deadlines, proactive relief measures, etc.
What is the Temporary Wage Subsidy for Employers?
Ottawa’s proposed Temporary Wage Subsidy for Employers was announced last week and is set to be in place for three months. It will be equal to 10% of total remuneration paid between March 18, 2020, and June 20, 2020, up to a maximum of $1,375 per worker and $25,000 per employer.
Importantly, associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
For example, if you have 5 employees, the maximum subsidy you can receive is $6,875 ($1,375 x 5 employees), even though the per employer maximum is $25,000.
Does my business qualify?
The wage subsidy is limited to eligible small businesses. The CRA says that includes the following:
- Canadian-controlled private corporations with less than $15 million in taxable capital employed in Canada, a measure also used to calculate the existing small business deduction;
- Non-profit organizations;
- Registered charities.
What if my business is closed?
If a business is otherwise eligible, but did not or will not be paying salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 20, 2020 because it is closed, it does not qualify.
How will the subsidy work?
The subsidy will be available immediately, but rather than receiving a cheque from the government, the employer may reduce the amount it is required to remit in payroll deductions to the CRA. In other words, pay less source deductions and keep the difference.
Employers can only reduce remittance of federal, provincial or territorial income tax — not Canada Pension Plan contributions or Employment Insurance premiums.
Who does the math?
Businesses must manually calculate the subsidy, based on the CRA’s guidelines.
For example, if you have 5 employees earning monthly salaries of $4,100 for a total monthly payroll of $20,500, the subsidy would be 10% of $20,500, or $2,050.
If you calculated a subsidy of $2,050, you would reduce your current remittance of federal, provincial, or territorial income tax by $2,050. You could continue reducing future income tax remittances, up to the maximum of $25,000, for all remuneration paid before June 20, 2020.
When can I start reducing remittances?
You can start reducing remittances of federal, provincial, or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 20, 2020.
For example, if you are a regular remitter, you can reduce your remittance that is due to the CRA on April 15, 2020.
What if subsidies exceed the remittances?
If the income taxes you deduct are not sufficient to offset the value of the subsidy in a specific period, you can reduce future remittances to benefit from the subsidy. This includes reducing remittances that may fall outside of the application period for the wage subsidy (after June 20, 2020).
For example: If you calculated a subsidy of $2,050 on remuneration paid between March 18, 2020, and June 20, 2020, but only deducted $1,050 of federal, provincial, or territorial income tax from your employees, you can reduce a future income tax remittance by $1,000, even if that remittance is in respect to remuneration paid after June 20, 2020.
Will the subsidy affect deductions from my employees?
No. You will continue deducting income tax, Canada Pension Plan contributions, and Employment Insurance premiums from salary, wages, bonuses, or other remuneration paid to your employees, as you currently do. The subsidy is only calculated when you remit these amounts to the CRA.
What if I don’t reduce remittances during the year?
If you are an eligible employer but choose not to reduce your payroll remittances during the year, calculate the temporary wage subsidy on remuneration paid between March 18, 2020, and June 20, 2020. You can then ask for the subsidy to be paid to you at the end of the year or transferred to the next year’s remittance.
What books and records do I need to support the subsidy?
You will need to keep information to support your subsidy calculation. This includes:
- the total remuneration paid between March 18, 2020, and June 20, 2020;
- the federal, provincial, or territorial income tax that was deducted from that remuneration; and
- the number of employees paid in that period.
The CRA is currently updating reporting requirements. More information on how to report this subsidy will be released in the near future.
Is the subsidy considered taxable income?
Yes. If you receive the subsidy, you have to report the total amount as income in the year in which the subsidy is received.
What about remittances made to Revenue Québec?
This Temporary Wage Subsidy for Employers allows eligible employers to reduce remittances made to the CRA only.
-Baber Rahim, JD Candidate and Tax Law Clerk
© Kalfa Law 2020