Our Views

Federal COVID-19 relief programs: what they mean for your business

Entrepreneurs are a huge part of the Newport family and the economic shutdown due to COVID-19 has brought a tsunami of business challenges.

They are responding with extraordinary leadership—reducing costs, pivoting their businesses and innovating to make it through the worst of this situation. At the same time, Ottawa and the provinces quickly launched a dizzying array of relief programs to help small and medium-sized businesses (SMEs) stay afloat.

“Stimulus packages that in normal times would take months to develop, debate and pass into law have been conceived and implemented very quickly,” explains Vincent Didkovsky, Newport’s Director of Wealth Management and a chartered professional accountant with extensive experience working with SMEs.

Didkovsky has been fielding countless questions from Newport’s entrepreneur community on COVID-19 relief measures, with many business owners wondering whether (or when) to take government help. Here’s a brief overview of some of the most significant federal programs, an analysis of their benefits, as well as a few cautionary tax points to keep in mind:

The Canada Emergency Business Account

The Canada Emergency Business Account program provides loans of up to $40,000, interest-free until December 31, 2022. If the balance of the loan is repaid in full before that date, then 25 per cent will be forgiven. If the loan is not repaid by that date, then the balance will be converted to a three-year term loan at 5 per cent interest. This loan is available to employers with between $20,000 and $1.5 million in total payroll in 2019.

“I’ve spoken with business owners who tell me they’ve applied for the loan though their banks, and this is the easiest process to borrow money from the government that they’ve ever experienced,” Didkovsky says.

“This is a great program for those in need, and I applaud the government for being decisive. It will provide help without a lot of regulatory red tape.”

The program isn’t perfect, however. Because it’s designed for organizations with annual payroll of at least $20,000, it excludes certain groups, such as smaller companies that rely almost solely on contractors.

Temporary 10 per cent wage subsidy

This is a three-month measure that enables businesses to cut costs by reducing their payroll deductions by 10 per cent of gross payroll. The maximum benefit per employer is $25,000 and there is no revenue test in order to qualify.

“While I think there’s great utility for some businesses, I’ve spoken with other SME owners who tell me that it may not be enough to influence the difficult decision of lay-offs” according to Didkovsky.

Another drawback: the subsidy is taxable. It may help aid business continuity for some, but in many cases a portion will be clawed back through income taxes.

Canada Emergency Wage Subsidy

This subsidy covers 75 per cent of eligible remuneration, up to $847 a week per employee for 12 weeks. In order to qualify, a business must experience a decrease in revenue of 15 per cent for March and 30 per cent for each of April and May.

Didkovsky says this is a beneficial, yet highly-complicated measure to qualify for given the sheer number of definitions and eligibility criteria—and it comes with significant risk.

The legislation requires the individual in charge of financial matters for your company to ‘attest’ that the Canada Emergency Wage Subsidy application you file is complete and accurate. But an attestation implies assurance, and the only one who can confidently give that is the company’s accountant or auditor, assuming you have one.

Potential abuse of the program could result in steep fines and potential jail time. Didkovsky’s advice: work closely with an accountant to confirm your company’s eligibility for the program, while carefully documenting revenue decreases in case of a Canada Revenue Agency (CRA) challenge.

Another potential strategy is to exhaust your cash reserves and tap the Canada Emergency Business Account loan program first, then wait to apply for the Canada Emergency Wage Subsidy. The deadline to apply for March, April and May is September 30, 2020, allowing you to make a retroactive application if necessary. The more applications that are received, the more guidance and interpretation the CRA will provide, further clarifying eligibility rules.

CRA calculator is now available to help you determine that amount your business can receive.

A brief word on RRIFs

The minimum RRIF withdrawal for 2020 has been reduced by 25 per cent. However, withholding tax will continue to apply only on withdrawals in excess of the previous minimum amount. The measure is designed to provide relief to retirees who would have had to liquidate more of their portfolio at depressed values to meet the old minimum RRIF withdrawal requirements.

More support to come

We can expect additional fine-tuning of these existing measures, while new ones such as the Canada Emergency Commercial Rent Assistance program are in development. In the meantime, work with your company’s financial team to determine which relief programs are right for your organization—and don’t hesitate to apply for the ones that are.

“In a crisis of this magnitude,” Didkovsky says, “business owners shouldn’t be reluctant to seek out government assistance when it’s truly needed.”