Tax implications of COVID-19 programs

Last updated Jan. 4, 2021. We will update blog posts when more information is released.

Did your business take advantage of federal COVID-19 programs in 2020? If so, questions are likely racing through your mind about the tax implications of receiving benefits from the various programs.

What do you need to report as income on your 2020 tax return?

Will you have to pay additional tax on the emergency benefit programs that withheld tax at the source?

What are your T4 reporting requirements if you took advantage of the Canada Emergency Wage Subsidy?

We’ve provided a summary to those common questions below.

And if you’re worried about your taxable income for 2020, don’t forget to claim business-related tax deductions, which includes remuneration paid to employees minus government support, or rent expenses. Click here for a list of top tax deductions for small business owners.

Canada Emergency Wage Subsidy

The Canada Emergency Wage Subsidy (CEWS) is a taxable benefit available to employers who have experienced a drop in revenue due to COVID-19, to cover part of their employee wages retroactive to March 15, 2020.

You can use the money to prevent layoffs and make it easier to resume operations after the pandemic is over. Plus, salaries are usually the biggest cost on an income statement. With the subsidy, you’ll have some cash flow that you can use for operating costs like rent, utilities, insurance and property taxes.

How CEWS will impact your tax return

The Canada Emergency Wage Subsidy is taxable. You must include the amount of CEWS you receive as taxable income on your corporate income tax return.

How to report employment income during COVID-19 pay periods

For the 2020 tax year, the CRA introduced new information codes for employers reporting employment income and retroactive payments in the following COVID-19 pay periods:

Code 57: Employment income – March 15 to May 9

Code 58: Employment income – May 10 to July 4

Code 59: Employment income – July 5 to August 29

Code 60: Employment income – August 30 to September 26

Make sure you fill out the section relevant to you on your corporate tax return.

Temporary Wage Subsidy

The temporary wage subsidy (TWS) reduced the amount of payroll deductions some employers were required to remit to the CRA for a 3-month period.

The subsidy was equal to 10% of remuneration paid between March 18, 2020 and June 19, 2020, up to a maximum subsidy of $1,375 per employee and $25,000 per employer.

How will the temporary wage subsidy impact my tax return?

If you took advantage of the TWS, you must report the total subsidy amount as income on your tax return in the same year you reduced your remittances.

You also may need to fill out form PD27, 10% Temporary Wage Subsidy Self-Identification Form for Employers, if you are eligible to take advantage of the TWS and:

You already reduced your remittances
You intend to reduced your remittances (the form will help you calculate your eligible TWS amount)
You claimed the Canada Emergency Wage Subsidy (CEWS) and, as a result, need to confirm on Form PD27 the amount of the TWS you are taking advantage of (refer to Line F of your CEWS application)

Canada Emergency Business Account

The Canada Emergency Business Account (CEBA) provides up to $60,000 in interest-free loans to small businesses.

If you’re facing a decline in revenue right now, this loan will help you cover operating costs like rent or payroll.

The best part of the loan is that it’s interest free until December 31st, 2022, and up to $20,000 of the loan is forgivable if you repay it by then.

How will CEBA impact my tax return?

The forgivable portion of the loan is taxable, so make sure you include the forgivable amount as income in 2020 (the year you received the CEBA loan).

Featured Resource: Tax Preparation Toolkit for Small Business Owners

Canada Emergency Rent Subsidy

The Canada Emergency Rent Subsidy (CERS) provides rent and mortgage support to qualifying businesses, charities and non-profits.

The subsidy covers eligible fixed property expenses, including rent.

The new rent subsidy is available on a sliding scale to business owners, with the amount your business receives proportional to your revenue loss.

For example: if your business experienced a revenue drop of 70% or more compared to pre-pandemic levels, you could receive a subsidy of up to 65% for eligible expenses until Dec. 19, 2020.

There’s also another layer of support for businesses whose revenues have dropped and have had to close their doors or limit their activities due to public health orders.

If your business qualifies, it could receive an additional 25% of rent support, which could mean a rent subsidy of 90%.

How will CERS impact my tax return?

The amount of CERS support you receive is taxable and must be included as taxable income on your corporate tax return.

Canada Emergency Response Benefit

The Canada Emergency Response Benefit (CERB) was a taxable benefit that provided $2,000 a month ($500 a week) for 28 weeks to workers who have lost their income due to COVID-19.

This included those for qualified for Employment Insurance (EI) benefits and those who didn’t, including self-employed individuals.

CERB was available until September 26, 2020 and the last date to apply retroactively was December 2, 2020.

How will CERB will impact my tax return?

The government will issue a T4A tax slip for the total amount of CERB you received in 2020.

You must report the amount of CERB you received as income on your 2020 tax return.

Since no tax was deducted at source from the CERB payments, you may need to pay tax on the amounts you received. This will depend on your total income in 2020 and your marginal tax rate.

Featured Resource: Tax Preparation Toolkit for Trades and Contractors

Canada Recovery Benefit

The Canada Recovery Benefit (CRB) is a taxable benefit for self-employed workers and other workers not eligible for EI, or Canadians who've had their employment/self-employment income reduced by at least 50% due to COVID-19.

Those eligible for the CRB can receive $1,000 ($900 after taxes withheld) for a 2-week period. If their situation continues past 2 weeks, they will need to apply again. They may apply up to a total of 13 eligibility periods (26 weeks) between September 27, 2020 and September 25, 2021.

How will the Canada Recovery Benefit impact my tax return?

While 10% of taxes are withheld for the CRB, you still may have to pay tax on the CRB depending on your total income in 2020 and marginal tax rate.

And if your annual net income, excluding the CRB, is over $38,000, you will need to repay some or all of the benefit through your income tax return.

Canada Recovery Sickness Benefit

The Canada Recovery Sickness Benefit (CRSB) provides $500 per week for up to two weeks, for workers who are sick or must self-isolate due to COVID-19, or have an underlying health condition that puts them at greater risk of getting COVID-19.

If you’re eligible for the CRSB, you can receive $500 ($450 after taxes withheld) for a 1-week period. If your situation continues past 1 week, you will need to apply again. You may apply up to a total of 2 weeks between September 27, 2020 and September 25, 2021.

How will the Canada Recovery Sickness Benefit impact my tax return?

Just like the CRB, 10% of taxes are withheld for the CRSB, and you may have to pay tax on the benefit depending on your total income in 2020 and marginal tax rate.

Canada Recovery Caregiver Benefit (CRCB)

The Canada Recovery Caregiving Benefit (CRCB) gives income support to employed and self-employed individuals who are unable to work because they must care for their child under 12 years old or a family member who needs supervised care.

If you’re eligible for the CRCB, your household can receive $500 ($450 after taxes withheld) for each 1-week period. If your situation continues past 1 week, you will need to apply again. You may apply up to a total of 26 weeks between September 27, 2020 and September 25, 2021.

How will the Canada Recovery Caregiver Benefit impact my tax return?

The same as above - 10% of taxes are withheld for the CRSB, so you might end up paying tax on the benefit depending on your income level and marginal tax rate.

Free Guide: Tax Preparation Toolkit for Small Business Owners

We know you’re dreading it, but it’s got to be done – and with a little preparation, you can fulfill your tax obligations without any stress. Our simple, easy-to-understand toolkit will teach you how to get organized for tax season. Download your free tax preparation toolkit to learn what information and key documents you need to prepare so you’re ready for the tax filing deadline. There’s even a printable checklist that lists all the documents you’ll need as a business owner, and tax write offs you shouldn’t miss out on. Get the prep out of the way so you can get back to running your business. Download your toolkit today.

Contact FBC

If you’d like to learn more about this or other COVID-19 programs for Canadian businesses, please call us at 1-800-265-1002 or email [email protected] Unlimited consultation related to tax matters is a key benefit of FBC Membership. You can also book an appointment. Visit our COVID-19 Resource Centre for the latest information, advice and insights for small business owners.