Need some technical advice surrounding Coronavirus (COVID–19) from our team of tax experts? We are here to help.
Canada Revenue Agency will defer the personal tax filing due date for the 2019 tax returns of individuals to June 1, 2020, and for trusts that have a taxation year ending on December 31, 2019 to May 1, 2020. But note there is no mention of any extension related to the filing of corporate income tax returns or partnership returns (although Quebec has since announced an extension to the partnership return due date to May 1, 2020).
Furthermore, the CRA Charities Directorate has announced it is extending the filing deadline to December 31, 2020, for all charities with a Form T3010, Registered Charity Information Return due between March 18, 2020 and December 31, 2020.
All taxpayers will be allowed to defer until after August 31, 2020 the payment of any income tax amounts that became owing on or after March 18, 2020 and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.
Let’s say Company A qualifies as a Canadian Controlled Private Corporation (CCPC), has claimed the Small Business Deduction in 2019 and the taxable income of the Company A’s associated group did not exceed $500,000 in the prior year. If Company A has a December 31, 2019 fiscal year end, the tax balance (less any required instalments) would normally be due on March 31, 2020. This balance would now only need to be paid by September 1, 2020 and no interest or penalties would accumulate during the period of March 31, 2020 through August 31, 2020.
However, let’s say Company B is a CCPC that does not meet the above requirements or is not a CCPC, and has a December 31, 2019 year end. The tax balance (less any required instalments) would normally be due on February 29, 2020. This balance, if it hasn’t been paid yet would still be subject to applicable penalties and interest during the period between March 18, 2020 and August 31, 2020 if it remains unpaid.
Furthermore, if either of the above-mentioned companies has an instalment payment requirement for the 2020 fiscal year, the March – August instalment payments can be deferred without triggering instalment interest. The same holds true for the June 15th personal tax instalment requirement.
Note there has been no mention by the government of the ability to defer GST/HST payments or payroll withholding payments (other than the wage subsidy referred to below). This makes sense since GST/HST and payroll withholdings are trust monies.
Wage subsidy for employers
On March 18, 2020, in an effort to mitigate the effects of the COVID-19 outbreak on our economy, the government proposed a wage subsidy for a period of three months to help employers and help prevent lay-offs due to revenue losses. Enabling legislation has now received Royal Assent. As mentioned in the Backgrounder issued by the Department of Finance on March 18, 2020, “the subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, partnerships, individuals who are employers, as well as non-profit organizations and charities. Employers would already need to have a payroll remittance account registered with the Minister on or before March 18, 2020. The statutory definition of eligible employers is provided in the COVID-19 Emergency Response Act.
We have since had some clarification from CRA in respect of the administration of the subsidy which has answered many of our previous questions. Here are some additional details that have been provided by CRA:
- CRA has provided additional information with respect to what is meant by the term “eligible for the small business deduction”. According to CRA, only businesses that are Canadian controlled private corporations (CCPC) whose taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million would qualify for the wage subsidy.
- We have also had some clarification with respect to the tax status of the subsidy. As we suspected it would be, it is indeed taxable.
- CRA has indicated that associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
- The subsidy is available immediately in respect of remuneration paid between March 18, 2020 and June 20, 2020. For example, regular remitters, can reduce their remittance that is due to the CRA on April 15, 2020.
- Note that the subsidy cannot be used to reduce CPP or EI remittances. It is only meant to reduce remittances of income tax withheld from employees.
- If eligible employers choose not to reduce their payroll remittances during the year, they can ask for the subsidy to be paid to them at the end of the year or transferred to next year’s remittance. Note though that only the remuneration paid between March 18, 2020 and June 20, 2020 is eligible for the subsidy.
There is no apparent restriction in respect of non-arm’s length employees.