What small busi­nesses should know about the new wage sub­sidy

Calgary Herald - - FINANCIAL POST - JAMIE GOLOMBEK Tax Ex­pert

Many small busi­nesses, along with non-prof­its and char­i­ties, in Canada may be par­tic­u­larly hard hit by the fi­nan­cial fall­out of COVID-19 and may ex­pe­ri­ence a sig­nif­i­cant loss of rev­enue. This week, the govern­ment passed leg­is­la­tion to put into place a va­ri­ety of mea­sures to help in­di­vid­ual Cana­di­ans and busi­nesses fac­ing hard­ship as a re­sult of the COVID-19 out­break. Among the mea­sures was a tem­po­rary wage sub­sidy pro­gram for em­ploy­ers, a new loan pro­gram for busi­nesses, and de­ferred pay­ment dead­lines for in­come tax and GST/HST.

Tem­po­rary wage sub­sidy pro­gram

As orig­i­nally in­tro­duced, the tem­po­rary wage sub­sidy pro­gram was to be equal to 10 per cent of re­mu­ner­a­tion paid by an “el­i­gi­ble em­ployer” be­tween March 18 and June 19, 2020. On Fri­day, in his daily press con­fer­ence, Prime Min­is­ter Justin Trudeau an­nounced that the wage sub­sidy will be in­creased to 75 per cent of wages for small- and medium-sized busi­nesses af­fected by the COVID-19 pan­demic, and made retroac­tive to March 15, 2020.

While more de­tails about the wage sub­sidy plan are ex­pected to be re­leased on Mon­day, here are some of the specifics based on the leg­is­la­tion that was passed this week.

As an em­ployer, you are re­quired to make source de­duc­tions be­fore pay­ing wages (and most other forms of re­mu­ner­a­tion) to your em­ploy­ees.

You gen­er­ally must deduct and with­hold amounts for in­come taxes, Canada Pen­sion Plan (CPP) or Quebec Pen­sion Plan (QPP) con­tri­bu­tions, and Em­ploy­ment In­sur­ance (EI) pre­mi­ums.

You must then pay these with­hold­ings, along with em­ployer CPP/QPP con­tri­bu­tions and EI pre­mi­ums, to the Canada Rev­enue Agency (CRA) (and Revenu Quebec) by the due date. If you make pay­ments quar­terly or monthly, the pay­ments are due by the 15th of the fol­low­ing month. Some em­ploy­ers who must make ac­cel­er­ated re­mit­tances have to re­mit ear­lier.

Un­der the pre­vi­ously an­nounced rules, the 10-per-cent sub­sidy had a cap of $1,375 per em­ployee and $25,000 per em­ployer. With the in­creased sub­sidy level of 75 per cent, these max­i­mums may be in­creased when fur­ther de­tails are an­nounced next week.

Un­der the leg­is­la­tion passed this week, em­ploy­ers that qual­ify for the wage sub­sidy in­clude in­di­vid­u­als (i.e. sole pro­pri­etors), cer­tain part­ner­ships, non-profit or­ga­ni­za­tions, char­i­ties and cer­tain Cana­dian-con­trolled pri­vate cor­po­ra­tions (CCPCS). A CCPC is es­sen­tially a pri­vate cor­po­ra­tion whose shares are not listed on a stock ex­change, and that is owned and con­trolled by Cana­dian res­i­dents. Large CCPCS that have tax­able cap­i­tal of more than $15 mil­lion among their as­so­ci­ated cor­po­ra­tions won’t qual­ify for this sub­sidy.

The sub­sidy is cal­cu­lated man­u­ally and, un­der the cur­rently-en­acted leg­is­la­tion, the em­ployer can choose to re­duce its pay­roll in­come tax re­mit­tances to the CRA by the amount of the sub­sidy. The re­duc­tion of tax re­mit­tances can be­gin on the em­ployer’s next re­mit­tance date (April 15 if the em­ployer is a quar­terly or monthly filer.) The amount of the wage sub­sidy will be in­cluded in the em­ployer’s in­come and taxed in the year it is re­ceived.

Em­ploy­ers must con­tinue to deduct all source de­duc­tions, in­clud­ing in­come taxes, CPP/QPP con­tri­bu­tions and EI pre­mi­ums from em­ploy­ees’ pay.

The em­ployer can only re­duce re­mit­tances of fed­eral, pro­vin­cial (other than Quebec) or ter­ri­to­rial in­come taxes and can­not re­duce any re­mit­tances of CPP/QPP con­tri­bu­tions or EI pre­mi­ums. (Re­mit­tances to Revenu Quebec may not be re­duced.)

While the CRA is cur­rently work­ing on the re­port­ing re­quire­ments for the wage sub­sidy pro­gram, the em­ployer should keep all in­for­ma­tion nec­es­sary to sup­port its man­ual cal­cu­la­tion of the sub­sidy. This will in­clude records of all re­mu­ner­a­tion for the rel­e­vant pe­riod, as well as tax de­duc­tions and the num­ber of em­ploy­ees.

If the em­ployer chooses not to re­duce cur­rent pay­roll re­mit­tances, it can trans­fer the wage sub­sidy to a fu­ture re­mit­tance or can re­quest to have it paid at the end of 2020.

Tax Tem­plates Inc., a Toronto com­pany that spe­cial­izes in cre­at­ing spe­cial­ized tax spread­sheets for pro­fes­sional tax ad­vis­ers, has cre­ated a free work­sheet that can be ac­cessed on­line to help Cana­dian busi­nesses and their tax ad­vis­ers cal­cu­late their busi­nesses’ wage sub­sidy.

It’s pos­si­ble that the me­chan­ics of how the wage sub­sidy will be ad­min­is­tered will be changed to ac­com­mo­date the newly an­nounced 75-per-cent sub­sidy level.

New loan pro­gram for busi­nesses

On Fri­day, the prime min­is­ter also an­nounced the Canada Emer­gency Busi­ness Ac­count, which will be im­ple­mented by fi­nan­cial in­sti­tu­tions in co-oper­a­tion with Ex­port De­vel­op­ment Canada. It will pro­vide in­ter­est-free loans of up to $40,000 to small busi­nesses and not-for-prof­its to help cover their op­er­at­ing costs dur­ing a pe­riod when their rev­enues have been tem­po­rar­ily re­duced due to the eco­nomic im­pacts of the COVID-19 virus.

To qual­ify, these or­ga­ni­za­tions will need to demon­strate they paid be­tween $50,000 and $1 mil­lion in to­tal pay­roll in 2019. Re­pay­ing the bal­ance of the loan on or be­fore Dec. 31, 2022, will re­sult in loan for­give­ness of 25 per cent (up to $10,000).

De­ferred pay­ment dead­lines

The CRA will al­low all busi­nesses to de­fer, un­til Sept. 1, the pay­ment of any in­come tax amounts that be­come ow­ing on or af­ter March 18, 2020, and be­fore Septem­ber 2020. This re­lief ap­plies to tax bal­ances due, as well as in­come tax in­stal­ments.

The govern­ment made it clear that no ar­rears in­ter­est or penal­ties will ac­cu­mu­late on these amounts dur­ing this pe­riod. The CRA has also pushed back the re­mit­tance dead­line for GST/ HST re­mit­tances. Nor­mally, GST/HST amounts col­lected by busi­nesses are due by the end of the month fol­low­ing the ven­dor’s re­port­ing pe­riod.

The CRA has an­nounced that it will ex­tend the re­mit­tance dead­line un­til June 30, 2020.

The re­sult is that monthly fil­ers can de­lay re­mit­ting amounts col­lected for the Fe­bru­ary, March and April 2020 re­port­ing pe­ri­ods un­til June 30, while quar­terly fil­ers have un­til that date to re­mit amounts col­lected for the Jan. 1, 2020, through March 31, 2020 re­port­ing pe­riod.

An­nual fil­ers, whose GST/HST re­turn or in­stal­ments are due in March, April or May 2020 can now re­mit amounts col­lected and ow­ing for their pre­vi­ous fis­cal year, as well as in­stal­ments of GST/HST for cur­rent fis­cal year by June 30, 2020.

The CRA con­firmed it won’t be con­tact­ing any small- or medium-sized busi­nesses to ini­ti­ate any post as­sess­ment GST/HST or in­come tax au­dits for the next four weeks.

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