Overview:
Due to the COVID-19 pandemic, many Canadian businesses have been negatively affected by this unpredictable crisis. Some businesses were lucky enough to keep their operations going, but not at a very profitable rate. Other businesses, on the other hand, had to shut down their operations due to public health orders.
The Canadian Government stated rules and acts on October 9, 2020, that helped local businesses with their operations during this pandemic. It provided support to its local businesses to help them survive the second wave of the COVID-19 pandemic. The government also supported the businesses to continue serving their community by covering their overhead costs and also maintaining a strong recovery. The plan includes:
- The Canada Emergency Rent Subsidy (CERS).
- Extend the Canada Emergency Wage Subsidy (CEWS).
- Expand the Canada Emergency Business Account.
The Canada Emergency Rent Subsidy (CERS)
This program is all about supporting businesses’ mortgage and rent payments. It also supports charities and other non-profit organizations that have been negatively affected by the COVID-19 pandemic. The program is eligible and active until June 2021. The CERS plan will replace the Canada Emergency Commercial Rent Assistance Program that supported landlords applying for rent relief. Of course, this act ended in September 2020.
Generally, the CERS plan seeks to support tenants and business owners as it allows them to apply to the Canada Revenue Agency (CRA) for rent and mortgage relief while also supporting them with financial aid. Moreover, it will provide the financial support needed for paying expenses like rent and commercial mortgage interests. Note that applying to the CERS had already opened from November 2020. Now applicants can apply for their relief before September 27, 2020.
Thanks to the CERS program and plan, it is stated that businesses, charities, and non-profit organizations will be offered up to 65% of their eligible expenses until December 19, 2020. However, this benefit is only eligible to those tenants that have experienced a decline in revenue up to 70% because of the pandemic. Also, if some of these businesses and non-profit organizations have experienced a decrease in their revenue that is less than 70%, then they are eligible for financial support according to their number of losses. Finally, the CERS will provide the businesses and organizations that had been forced to shut down their operations, due to the COVID-19 pandemic, a 25% emergency rent financial support, and a 70% subsidy.
Extended Canada Emergency Wages Subsidy (CEWS)
Employers that are eligible and allowed to apply for the CEWS are offered a portion of an employee’s wages. The benefits of this plan will maintain the wage payments for employees and will maintain their jobs, as they will be no more layoffs during the COVID-19 pandemic. Moreover, it will create more job opportunities for people.
The Canadian government had decided to extend the Canada Emergency Wage Subsidy till the end of June 2021. The purpose of this plan is to restore employment and at the same time creating new employment opportunities. The parties that are eligible for this plan are the businesses that have faced a decrease in their revenue during these hard times, in addition to the non-profit organizations and charities. Applying for this act will help them cover a huge part of employees’ wages, retroactive to March 15, 2020.
The rates of the support, however, ranges and is calculated as follows:
The Canadian Government will state a rate of 40% as the maximum base financial support.
The Canadian Government will state a rate of 25% as the maximum top rate.
These rates will continue to be valid until December 19, 2020.
The rules for how much financial support an employer is given, are determined in two situations during the COVID-19 pandemic:
- If an employer had experienced a 70% decrease in revenue or more, he/she may be eligible to receive up to 65% of wage finical support.
- If an employer had experienced less than a 70% decrease in revenue, he/she may be eligible for financial support that is determined through a “revenue decline test.”
The revenue decline test will help analyze and determine the financial support an employer is allowed. It does so by analyzing the changes in an employer’s revenue every month in correlation with the employer’s January 2020 and February 2020 average revenues.
Expanded Canada Emergency Business Account (CEBA)
This plan states that the government of Canada will financially support small businesses and non-profit organizations by providing them loans that are free interests up to $40,000. This loan is only available to small businesses and non-profit organizations that have faced a decrease in their revenue during the pandemic. The CEBA’s purpose is to cover these entities’ operating costs, and to our luck, the government has announced that they will expand the loan amount from $40,000 to $60,000. Furthermore, $20,000 of the loan is forgivable if it is repaid by December 31st of 2022.
Note that the deadline for applying to this plan is December 31st of 2020.
The Pros and Cons
First of all, what needs to be made clear is that the Canadian Government’s financial support plan can’t be determined in terms of effectiveness and efficiency. However, it’s a known fact that the CERS, CEWS, and CEBA are very supportive financial aids that will definitely help businesses, charities, and non-profit organizations that suffered from the COVID-19 Pandemic. If implemented properly, of course.
Canada Emergency Rent Subsidy (CERS):
The second thing we would like to shed some light on, is the fact that the Canadian Government hasn’t mentioned any kind of subsidiary concerning landlords in the CERS plan. Mainly, as discussed before, the CERS supports tenants and business owners with their fixed property expenses like rent and mortgages. However, the government of Canada hadn’t mentioned anything about the CERS plan supporting other kinds of business expenses like operating expenses, for example. These facts are just to enlighten how this plan can be effective if planned out and analyzed properly.
On the other hand, the upside for the CERS plan is that it’s able to support up to 90% of financial aid to the businesses, charities, and non-profit organizations that were forced to close their operations because of the public health orders. It’s quite considerate and somewhat effective that the Canadian Government is able to help those entities after suffering from a challenging financial slump due to the COVID-19 pandemic. Still, it doesn’t face the fact that these entities and businesses had to close up their shops and operations, which meant not being able to make any revenue while paying fixed expenses. This leads us to the financial support of 90% given by the CERS that aren’t able to cover all the losses faced by these businesses. This pandemic not only forced some businesses to temporarily close their doors, it also had other businesses close permanently, especially restaurants.
Canada Emergency Wages Subsidy (CEWS):
As mentioned above, we’re not quite certain if these plans and acts by the Canadian government are effective enough to support as many businesses as possible. The CEWS for example is a very well-driven plan that can probably save a huge number of jobs and decrease the unemployment rate, due to the COVID-19 pandemic. Nevertheless, it’s still not clear whether the extension of the CEWS plan will truly save the unemployment rate and build a stronger economy for the Canadian Government.
Canada Emergency Business Account (CEBA):
The extension of the CEBA was indeed a very well-thought-out plan. This act can really help and support start-up and small businesses, as providing over $40,000 free of interest loans will get these entities back on track, especially the fact that $20,000 of the loan is considered forgivable. Not to mention that the businesses have up until December 31, 2022, to repay the loan in full. Although, the unstable situation created by the COVID-19 pandemic has business owners and other entities feeling uncertain whether they will be able to pay off their loan or not, especially if they want to take advantage of the forgivable $20,000 loan amount.
Having stated all the pros and cons above for these Canadian Government plans, it clearly shows how the government isn’t fully ready to provide financial support to its local businesses, charities, and non-profit organizations.
Our Tip
Keep in mind that any business, charity, or non-profit organization that applies to either of the CERS, CEWS, or CEBA plans will be most likely tax audited if they aren’t eligible to do so. They will also face crucial financial penalties with interest and more. However, these plans can really support your business if you have faced any challenges during the COVID-19 pandemic and the public health laws that came with it. That’s why we suggest that you contact us at Tohme Accounting and let us help you in making the right decision for your business or entity. We are a professional accounting firm that can provide professional financial services that are beneficial to you and your firm.