The Canada Emergency Business
Account (CEBA) program is intended
to support businesses incurring
non-deferrable expenses by providing
partially forgivable interest-free
loans. Originally, applicants could
receive a loan of up to $40,000, with
25% of it being forgivable if the other
75% was repaid by December 31,
2022. On December 4, 2020, CEBA
loans for eligible businesses increased to $60,000.
Those who previously received a CEBA loan of up to
$40,000, may now apply for the $20,000 expansion. New
applicants can apply for the full $60,000 CEBA loan
provided they meet the previous eligibility criteria under one
of the two possible application streams: they must have had
at least $20,000 in payroll in 2019, or at least $40,000 in
eligible non-deferrable expenses in 2020. Applications must
be submitted by March 31, 2021, and a new loan agreement
and attestation must be signed.
Prior to applying for the additional amount, there are four
major issues that must be considered:
– an assertion that the business has been negatively
affected is required;
-the new loan agreement may change the required use
– there are changes to the way the debt forgiveness is
– the forgivable portion of the loan is taxable when
Negatively affected by COVID-19
Business owners must attest that COVID-19 has negatively
impacted the business and that it:
– is facing ongoing financial hardship (including, for
example, a continued decline in revenue or cash
reserves, or an increase in operating costs);
– intends to continue to operate; and
– has made all reasonable efforts to reduce its costs and
to otherwise adapt.
Use of the funds
An amended agreement which certifies that all
expenditures under the program are “eligible non-
deferrable expenses” is required to be signed. Some earlier
agreements may not have had such a restriction; this
provision could effectively change the original agreement.
Therefore, signing the amended agreement may put certain
applicants offside if they had not spent the funds on those
eligible non-deferrable expenditures
initially. When the program was originally launched, only the
payroll stream was available, and the term “eligible non-
deferrable expenses” was not specifically used to define what
amounts could be spent on.
If the outstanding principal, other than the amount of potential
debt forgiveness, is repaid by December 31, 2022, the
remaining principal amount will be forgiven, provided that no
default under the loan agreement has occurred. If the full
non-forgivable portion is not repaid by December 31, 2022,
no portion of the debt will be forgiven.
Both the original and additional loans are combined. If the
total is up to $40,000, 25% is forgiven if the applicant pays
back the other 75% by December 31, 2022. If the total is
above $40,000, repaying $30,000, plus 50% of the portion
exceeding $40,000 by December 31, 2022, will result in the
remainder being forgiven. If the applicant already repaid
the original $40,000 loan, claimed forgiveness and then
borrowed the additional $20,000, the remainder will be
forgiven if they repaid 50% of the loan.
Timing of Taxation
In two recent Technical Interpretations, CRA reiterated its
position that the forgivable portion of the loan is taxable in the
year in which the borrowed amount is received,
regardless of whether all conditions have been met to allow
forgiveness. This applies to both the original version of CEBA and the additional $20,000.
In some cases, an election may be made to defer the
income inclusion from the year of receipt, to the following
year. This income will be offset by the related expenditure.
ACTION ITEM: Before applying for the additional CEBA
loan, ensure that you have, and will be able to, comply
with the new loan agreement and attestation.
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