Almost a month ago, in May, the government announced expanded eligibility for Canada Emergency Business Account (CEBA). Previously, only the businesses with a minimum of $20,000 in payroll were eligible. After facing a lot of criticism and feedback, the government decided to expand the eligibility program to include more businesses.
As of now, CEBA program includes two streams:
- Payroll stream – eligibility same as for old program when initially rolled out
- Non-deferrable expenses stream
Non-Deferrable Expenses Stream comes with its own rules.
How to Apply for CEBA under Non-Deferrable Expenses Stream?
Non-Deferrable Expenses Stream applications open on
Friday, June 19, 2020.
UPDATE: Expanded CEBA eligibility program is open now on June 26, 2020.
This is a two-step process:
- Apply on your bank’s (financial institution) website
- The application will be directed to the CEBA website, where applicants need to complete the application by submitting supporting documents.
If your application is successful, your bank will be notified.
This post only discusses non-deferrable expenses, for expanded eligibility details, please visit this post.
What are Non-Deferrable Expenses?
There was much of guesswork involved before and different people were expressing different opinions on what can be considered as non-deferrable expenses for CEBA loan.
Good news! the government has clarified and specifically explained what can be considered as a “non-deferrable expense”.
Bad News! There are specific categories of expenses that are eligible and might leave some businesses out of the program again.
Only the “arm’s length” transactions with independent third parties are eligible. If you have employees who deal with you at arm’s length, their wages and other employment expenses are eligible. Non-arms length wages and salaries are not eligible. Another post discusses what is meant by arm’s length.
If you are a shareholder-employee, your wages and salaries are not eligible because you are no dealing at arm’s length. If you had paid yourself a salary in 2019, you may qualify under the payroll stream of CEBA instead of non-deferrable expenses. You might be interested in another post about late filing of T4 for CEBA.
2. Rental and Lease Payments:
Two types of rental and lease payments are identified in the CEBA rules which are eligible as non-deferrable expenses:
- Real estate used for business purposes, for example, office rent and lease.
- Capital equipment used for business purposes, for example, a truck or equipment used for business purposes.
3. Insurance, Property Taxes and Utilities
Some of the operating expenses which are considered as non-deferrable expenses for CEBA purposes and clearly categorized in CEBA rules:
- Insurance payments, for example, liability insurance or general insurance.
- Payments of property taxes for businesses.
- Payments for different utilities for business purposes such as electricity and water, telephone and internet, or utilities powered by oil and gas.
4. Scheduled Debt Service
Payments for regularly scheduled debt service. It does not mean that a business can take CEBA loan and clear off its existing debt in full. Only the scheduled debt payments are considered for this purpose.
5. Independent Contractors
If you are working with independent contractors under the agreement, the payments to these independent contractors are eligible.
6. Business Licenses and other Fee
In order to run a business, there might be some license fee to pay. Such payments are considered non-deferrable under new eligibility rules. For example, you might have to pay a franchisor or licensor for trademarks and know-how.
How to prove Non-Deferrable Expenses and What are the supporting documents?
You will be required to submit all the supporting documents. Supporting documents include invoices, receipts, bank loan agreements showing the schedule of payment, lease or rent agreement, franchise agreements, employment agreements or independent contractors agreements, or any other document which proves the non-eligible deferrable expenses you are including.
Supporting documents can be either in electronic form or paper copy.
Is Dividend Considered Non-Deferrable Expense for CEBA?
No, dividends are paid out of the corporation’s profits. It’s not even an expense! In short, the dividend is not a non-deferrable expense. At personal taxes, level dividend is investment income.
Is Business Bank Account needed for CEBA?
Yes, you must have a business bank account. If you use your personal bank account for doing business transactions, you do not qualify for CEBA. Further, this business bank account must have been opened on or before March 01, 2020.
Using Other COVID-19 Response Programs in Conjunction with CEBA
If you are using other government support programs, it will affect the calculation of non-deferrable expenses.
For example, if you are taking a 10% wage subsidy or 75% Canada Emergency Wage subsidy you need to adjust your payroll expenses while calculating CEBA non-deferrable expenses. If you are having a payroll of $10,000 and you have already taken 10% subsidy of $1,000, you cannot include a full $10,000 as a non-deferrable expenses.
Specifically included programs that affect the calculation of non-deferrable expenses are Canada emergency wage subsidy, 10% wage subsidy, rent assistance, regional relief, recovery fund, northern business relief fund, Fish harvest grant, Futurepreneur Canada, indigenous businesses relief, and IRAP subsidy program.
If you are not sure which expenses to include or how to calculate your non-deferrable expenses, please contact your professional corporate tax accountant.
How Long is the Process?
CEBA website says it takes 10-15 business days once all the supporting documents are submitted.
Maroof HS CPA Professional Corporation is a professional accounting firm located in the Greater Toronto Area. We are registered with the province of Ontario and Alberta in Canada. We assist businesses in achieving compliance and are helping them in these difficult times.
If you need assistance with the completion of requirements for different relief programs such as updating your corporate income tax filings, the calculation for non-deferrable expenses or any other tax and accounting matters, please contact us. However, due to the limitation of resources and a higher volume of inquiries, we provide assistance related to CEBA questions to our existing or new clients only.