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Pre‑ruling Consultation with the Canada Revenue Agency (CRA): a little‑known yet practical service
Canada’s tax system is very complex and tends to become more complex over time. Amendments to tax laws in recent years have not simplified our tax system, quite the contrary. The introduction of various intention tests in tax laws has also further increased tax authorities’ discretion as to the application of such laws. In this context, it is often a good idea to obtain the Canada Revenue Agency’s (“CRA”) advice on the application of tax laws to proposed transactions. Given that the CRA is responsible for applying the Income Tax Act (the “ITA”) and other legislation, some Canadian taxpayers would be well advised to ensure that the CRA will agree with their interpretation of the ITA in the context of a proposed tax plan or transaction. Getting the CRA’s opinion will help to steer clear of differences in opinion that could lead to lengthy and costly debates. The CRA has long offered Canadian taxpayers the opportunity to consult it before proceeding with tax plans or transactions. The two best known mechanisms for doing so are requests for a Technical Interpretation and requests for a Ruling. As a request for a Technical Interpretation is made anonymously, the resulting interpretation as to the application of the ITA is not binding on the CRA, and it requires a considerable amount of time to obtain. A request for a Ruling, on the other hand, requires identification of the parties and details of the proposed tax plan or transaction, and the resulting Ruling will bind the CRA to certain conditions. It is also faster to obtain. The CRA charges a fee to render a Ruling, but does not charge one for a Technical Interpretation. There is, however, a third, lesser-known mechanism available to taxpayers: a Pre-ruling Consultation. Some of its advantages include: Faster feedback for taxpayers as to the likelihood that the CRA will render the Ruling sought. Lesser preparation costs, as a Pre-ruling Consultation request requires less information than a request for a Ruling. Lower fees to be paid to the CRA in cases where the CRA believes that it cannot render the Ruling a taxpayer is seeking. The use of the Pre-ruling Consultation service will often be the best way to begin the request for a Ruling process. By using the service, taxpayers can quickly determine, at a relatively low cost, whether they should engage in the request for a Ruling process. The service isn’t a substitute for obtaining such a Ruling, however, as a Ruling has the advantage of binding the CRA with respect to the tax consequences of a proposed tax plan or transaction. Our taxation team can guide you and answer your questions regarding the services that the CRA offers in connection with tax compliance.
Teleworking: What are the allowable expenses for employees and tax impacts for employers?
The COVID-19 pandemic has changed Canadian workplaces. For many organizations, the pandemic and its containment measures have fast-tracked the shift to teleworking. In this context, the Canada Revenue Agency (the “CRA”) and the Agence du Revenu du Québec (the“ARQ”) have published administrative positions regarding deductible expenses for employees working from home as well as for their employers. Eligible expenses for an EMPLOYEE The first condition for claiming employment expenses related to teleworking involves being obliged to work from home. The CRA has announced some flexibility in this regard, to the effect that if an employer did not require an employee to work from home but gave them the option to do so because of the COVID-19 pandemic, the CRA will consider the employee to have worked from home as a result of the pandemic. Temporary flat rate method: Federal and Quebec deduction of $2 per day without Form T2200 On December 15, 2020, the Government of Canada announced that employees who worked from home more than 50% of the time for at least four consecutive weeks in 2020 will be able to deduct $2 from their incomefor each day worked during that period and for each additional day worked outside that period, for a maximum of $400. The temporary flat rate method only applies to the 2020 taxation year. To qualify, the employee must only deduct only home office expenses and no other employment expenses. Details of expenses incurred for with teleworking or Form T2200 will not be required to claim this deduction. On December 16, 2020, the Government of Quebec followed the Government of Canada’s lead by announcing that taxpayers would be allowed to deduct $2 per day for each day worked from home, up to a maximum of $400, without supporting documents or a TP-64.3 form. Detailed method In general, an employee (whether a tenant or a homeowner) may deduct reasonable expenses directly related to the use of space in the home for work if and only if at least one of the following two conditions is met: (i) The space devoted to work in the home is “the place where the individual principally (interpreted by the courts to be more than 50% of the time) performs the office or employment duties”; or (ii) The workspace in the home is “used exclusively [...] to earn income from the office or employment and, on a regular and continuous basis, for meeting customers or other persons in the ordinary course of performing the office or employment duties.” The period used to assess eligibility criteria for 2020 must be at least four consecutive weeks. This period may last more than a month. If the workspace is part of a residence rented by the individual, a reasonable portion of the rent may be deductible. However, an individual may not claim any deduction for the rental value of the workspace in a home owned by the individual or for amortization, taxes, insurance or mortgage interest in respect of that home. Notwithstanding the above restrictions, the Income Tax Act provides that employees remunerated by commissions may deduct a reasonable portion of the taxes and insurance paid for the home they own, if one of the above criteria is met. It is important to note that these expenses are eligible only to the extent that they are not otherwise reimbursed by the employer. In order to determine the amount that can be deducted in this way, it is important to use a reasonable basis for calculation.For example, the calculation can be based on the area of the workspace in proportion to the total area of the home. Other possible uses of space must also be considered. The use of 100% compared to 75% of the space by an employee is an important factor in the calculation. For example, a kitchen table used as office space by an employee will have mixed use, which will have a direct impact on the amount of deductible expenses. Eligible expenses(salaried employees and those remunerated by commission) Electricity Heating Water Utility portion (electricity, heat and water) of the employee’s condominium fees Home internet service costs Maintenance and minor repair costs Rent paid for the house or apartment where the employee lives Eligible expenses(employees remunerated by commission only) Home insurance Property taxes Rental of a cell phone, computer, laptop, tablet, fax machine, etc. that is reasonably related to commission income Ineligible expenses(salaried employees and those remunerated by commission) Mortgage interest Mortgage payments Internet connection fees Furniture Capital expenses (replacement of windows, floors, furnace, etc.) Wall decorations Note that if an employee can deduct an expense in calculating taxable income for income tax purposes, they may also qualify for a refund of the Goods and Services Tax / Quebec Sales Tax (“GST/QST”) paid. GST and QST refunds are taxable and must be included in the employee’s income tax return the following year. It is also important for the employee to keep supporting documents. The CRA recently developed an expense calculator to simplify calculating eligible expenses. An employee will have to complete the following forms to deduct expenses and obtain GST and QST refunds: a) T777 – Statement of Employment Expenses; b) TP-59 – Employment Expenses of Salaried Employees; c) GST370 – GST/HST Rebate Application; and d) VD-358 – QST Rebate for Employees. In order to deduct employment expenses from income, including certain expenses related to space devoted to working from home, the employee must have received two forms from the employer: a) Form T2200 - Declaration of Conditions of Employment (“T2200”); and b) Form TP-64.3 General Employment Conditions (“TP-64.3”) (Quebec employee only). Considerations for the employer On December 15, 2020, the CRA announced the launch of a simplified process to claim home office expenses for the 2020 tax year. Accordingly, a simplified version of Form T2200 was made available as Form T2200S. The form may be found here. In order for an employee to be able to deduct the expenses described above, Form T2200S must indicate: If the employee worked at home because of the COVID-19 pandemic; If the employer reimbursed or will reimburse the employee for some of the home office expenses; and If the amount was included on the employee’s T4 slip. Finally, the employer will have to certify that “this employee worked from home in 2020 due to COVID-19, and was required to pay some or all their own home office expenses used directly in their work while carrying out their duties of employment during that period.” It is expected that a large number of employees will meet the criteria for this deduction, at least as long as the workplace access restrictions attributable to COVID-19 remain in place. The ARQ, for its part, has announced that, exceptionally, an electronic signature of the employer on the TP-64.3 form would be permitted. In addition, on December 16, 2020, the Government of Quebec announced that it will launch, in early 2021, an online service for generating a large number of TP-64.3 forms to be sent to teleworkers. This service aims to reduce the administrative burden on medium and large companies. More information on the online platform is expected in 2021. Other eligible expenses for an employee An employee will also be able to deduct certain expenses for supplies consumed directly in the course of their duties to the extent that they are not reimbursed by the employer, such as: a) Paper, pencils and ink cartridges; b) Internet costs, if they are charged based on usage. To this end, the CRA has announced that for the 2020 taxation year, it will exceptionally accept monthly residential internet service costs (the cost of the plan must be reasonable). Expenses reimbursed by an employer Normally, an amount received from an employer to reimburse an expense is considered a benefit to the employee and must be added to the employee’s employment income, unless such expenses are necessary for the performance of the employee’s duties. Employees may not deduct reimbursed expenses. In addition, in the current context, the CRA and the ARQ have announced that the reimbursement of $500 by an employer to an employee to offset the cost of acquiring personal computer equipment or office equipment required for telework does not constitute a taxable benefit to the employee. For example, if the purchase is a $1,000 desk, the taxable benefit included in the employee’s income will be $500. The CRA has recently announced that this amount will not be increased. Allowance paid by an employer Some employers will prefer to pay an allowance directly to their employees who are teleworking to cover the additional costs they incur. In this context, the employer will be able to deduct this allowance in the calculation of its taxable income, provided that it is a reasonable amount. Normally, the amount of this allowance will be treated as a taxable benefit to the employee and will have to be included in employment income for the taxation year in which the employee receives it, except in the situation covered by the exception mentioned above. Other considerations for the employer It is also important for the employer to consider the tax implications—particularly with respect to source deductions—of the location where the employee primarily works during the pandemic if it differs from the location of the employer’s establishment where they normally report for work. The CRA and the ARQ have announced relief in this respect for the 2020 taxation year. For example, the province of work will not change for employees who work from home because of the COVID-19 pandemic. The province for the purpose of calculating source deductions will continue to be the province of the normal place of work. However, if the employee performs their work in a foreign country, certain tax implications for both the employee and the employer should be considered. Lavery’s tax law team can guide you and answer your questions regarding your company’s tax compliance. Technical interpretation IT-352R2.
International tax planning endorsed by the Court
In the recent decision in Agracity Ltd. v. The Queen1, the Tax Court of Canada (the “Court”) endorsed the Canadian tax consequences of business transactions between a Canadian corporation (“Agracity”) and its Barbados affiliate (“NewAgco-Barbados”) within a group of companies operating in the agrochemical industry (the “Group”). NewAgco-Barbados is an offshore company established for the purpose of negotiating and purchasing a particular herbicide (the “Herbicide”) internationally for resale in Canada. All of NewAgco-Barbados’s profits were generated by the resale of the Herbicide, which were subject to Barbados’s low tax rate. Agracity was in charge of receiving and filling orders for the Herbicide from Canadian consumers, under a service agreement with NewAgco-Barbados for the logistics, storage and transportation of the Herbicide from abroad to Canadian consumers. The Canada Revenue Agency (the “CRA”) attempted to allocate all of NewAgco-Barbados’s profits to Agracity, relying primarily on sham transaction rules and secondarily on transfer pricing rules under subsection 247(2) of the Income Tax Act2 (the “Act”). The Court held that the negotiation and procurement of the Herbicide by NewAgco-Barbados constituted a legitimate commercial objective and a genuine function within the Group. It ruled in favour of Agracity in this case and confirmed that the transactions between Agracity and NewAgco-Barbados were not deceptive and did not warrant any adjustment to Agracity’s profits under transfer pricing rules. This case sheds new light on how to interpret the business role of foreign subsidiaries and the limits of the CRA’s remedial authority with respect to transfer pricing provided for in the Act, making it easier for domestic businesses to implement international business structures. When properly set up and operated, these structures can provide substantial tax savings. The decision in Agracity v. The Queen has not been appealed. Our taxation team can assist you with national and international tax planning for your business transactions. 2020 CCI 91 R.S.C. 1985, c. 1 (5th suppl.);
Tax Aspects of Insolvency and Bankruptcy
The current crisis caused by the COVID-19 pandemic has already caused, and will continue to cause, significant liquidity problems for some businesses. Companies whose financial difficulties threaten their very existence will have to restructure in order to avoid bankruptcy, either by availing themselves of the protection of the Companies' Creditors Arrangement Act1 (the "CCAA") or by using the proposal mechanism of the Bankruptcy and Insolvency Act2 (the "BIA"). Tax considerations related to an arrangement or a proposal accepted by creditors Making use of the provisions of the CCAA or the BIA entails tax considerations for the debtor corporation that directors and owner-operators need to consider. Some of these tax considerations are discussed below. In the context of the restructuring of a debtor company, creditors may accept a partial settlement of their claim or a conversion of their claim into shares in the debtor company. If a corporation is not bankrupt within the meaning of the Bankruptcy and Insolvency Act, the settlement of a debt for an amount less than its principal will have tax consequences for the debtor corporation. For example, certain tax attributes of the debtor corporation such as the balance of loss carryforwards, the undepreciated portion of the capital cost of depreciable property or the adjusted cost base of capital assets will be reduced by the amount of the reduction in the receivable, if any. In certain cases, if the tax attributes of the debtor corporation are insufficient to absorb the amount of debt forgiven, inclusion in the calculation of its taxable income may occur, creating a tax liability. Several strategies can be adopted to limit undesirable consequences in the context of a restructuring under the Companies' Creditors Arrangement Act. As mentioned, it may be possible, among other things, to convert the debt into shares of the debtor company without causing adverse consequences, if the fair market value of the shares issued upon conversion of the debt is equal to the principal of the debt. In some cases, a debt held by a shareholder of the debtor company could be written off without consideration and without the need to issue shares. Finally, it may be possible, in certain situations, to avoid inclusion in the income of the debtor corporation through the use of certain reserve mechanisms or through tax deductions. Insolvency is a delicate situation for any business. Proper tax planning will allow the debtor company to maximize the effectiveness of the restructuring process offered by the CCAA. Our taxation team can help you set up effective planning in this context. R.S.C. 1985, c. C-36 and amendments R.S.C. 1985, c. B-3 and amendments
Time limit extensions: What are the possible consequences on limitation periods for tax purposes?
A recent Ministerial Order1 from the Minister of National Revenue has formally extended certain deadlines under the Income Tax Act (“ITA”) and the Excise Tax Act (“ETA”). The Order is retroactive to March 13, 2020. The extension is 6 months or until December 31, 2020, whichever is earlier. This Ministerial Order will have various implications for taxpayers and registrants, in particular in terms of limitation periods. For example, notices of reassessment may be issued until December 31, 2020, for taxpayers whose reassessment period under the ITA expired between May 20, 2020, and December 30, 2020, even in circumstances where there is no misrepresentations attributable to negligence, carelessness or wilful default in tax returns and no waivers of the regular reassessment period have been signed. As a result, the taxation years subject to the Order (in particular 2016 or 2017, depending on the taxpayer) and reporting periods would not be statute-barred in these circumstances. Reporting periods and taxation years that became statute-barred on or before May 19, 2020, are not subject to the Order. It remains to be seen how the Canada Revenue Agency (“CRA”) intends to apply the Ministerial Order. The CRA has stated that “generally, taxpayers would be informed of the details of a potential (re)assessment, including whether or not the CRA is applying an extension to a (re)assessment period under the Ministerial Order.”2 Time limits extended by 6 months The period for claiming SR&ED expenditures (Form T661), normally 12 months after the corporation’s filing due date for a return;3 The period for claiming an SR&ED investment tax credit (Form T661 and Schedule 31 or Form T2038), normally 1 year after the corporation’s filing due date for a return; The normal reassessment period for a taxation year (normally 3 years or 4 years after the issuance of a notice of assessment under the ITA) that would normally have expired after May 19, 2020, but before December 31, 2020; The normal reassessment period for a reporting period (normally 4 years following the issuance of an assessment under the ETA) that would normally have expired after May 19, 2020, but before December 31, 2020; The deadline for applying for an extension of time to file a Notice of Objection under the ITA and the ETA that would normally have expired after March 12, 2020 (normally 1 year after the expiry of the time limit for filing a Notice of Objection), as well as the time limit for appeal of the Minister’s decision dismissing such an application with the Tax Court of Canada. Our taxation team can help you manage your deadlines and your interactions with the tax authorities. Canada Gazette, Part I, Vol. 154, No. 37: COMMISSIONS, September 12, 2020 https://www.canada.ca/en/revenue-agency/services/covid-19-ministerial-orders/time-period-other-limits-faq.html For corporations and trusts with a tax year-end from September 13, 2018, to December 31, 2018, and an SR&ED reporting deadline from March 13, 2020, to June 30, 2020, the deadline is extended by 6 months. For corporations and trusts with a tax year-end from January 1, 2019, to June 29, 2019, and an SR&ED reporting deadline from July 1, 2020, to December 29, 2020, the deadline is extended to December 31, 2020. For individuals who operated a sole proprietorship for which the tax year ended on December 31, 2018, and whose SR&ED reporting deadline was June 15, 2020, the deadline is extended to December 15, 2020.
Court upholds deductibility of carrying charges
The Tax Court of Canada (the “Court”) recently upheld the deductibility of carrying charges incurred in connection with an issuance of shares. In so doing, the court upheld the tax benefits arising from a common financing practice. In addition, the Court reiterated the principle in tax matters according to which, save in exceptional cases, the legal relationships established by one or more taxpayers must be respected. In this case1, Laurentian Bank (the “Bank”) issued shares from its share capital to the Caisse de dépôt et placement du Québec (“CDPQ”) and the Fonds de solidarité des travailleurs du Québec (“FSTQ”) totalling $120M, through a private placement. In addition to assuming a portion of the costs incurred by CDPQ and FSTQ in connection with this issuance of shares, the Bank agreed to pay each of the investors, as professional fees for services rendered in connection therewith, an amount corresponding to 4% of the total amount of their investment. The Canada Revenue Agency challenged the Bank’s deduction, over 5 years, of the total amount of $4.8M paid to CDPQ and FSTQ, in particular on the grounds that no services had been rendered to the Bank by the two investors and that the expense was unreasonable. The Court ruled in favour of the Bank and allowed it to deduct the amount of $4.8M in computing its income on the basis of paragraph 20(1)(e) of the Income Tax Act, namely, in 20% increments over five fiscal years. Not only did the Court recognize the merits of the Bank’s arguments as to the fact that it had incurred an expense for services obtained from the CDPQ and the FSTQ, but the Court also confirmed that the expense was reasonable under the circumstances. In this decision, the Court recognized the favourable tax consequences for an issuer of shares arising from a common practice in the field of financing through share issuance. It also appears that the reasons for the Court’s decision could be applied to other costs incurred in the context of financing activities and thus allow entities incurring such costs to obtain a significant tax advantage. It is therefore to the advantage of corporations issuing shares or borrowing to carefully analyze and negotiate the financing agreements they are considering in order to maximize their tax benefits. Our taxation team can assist you in setting up a share issuance that is both successful and optimal from a tax standpoint. Banque Laurentienne du Canada c. La Reine, 2020 CCI 73
Important Changes to the CEWS announced: will you now be eligible, and what should you consider?
The Canada Emergency Wage Subsidy (the “CEWS”) is a key component of the Government of Canada’s COVID-19 economic response plan. The purpose of the CEWS, adopted on April 11, 2020, is to help Canadians keep their jobs during the crisis and help companies maintain an employment relationship with their employees in order to recover more quickly when the economy returns to normal. On July 13, 2020, when the Canada Revenue Agency had already approved 667,400 applications, the Prime Minister of Canada confirmed that the CEWS will be extended until December 2020. A few days later, on July 17, the Minister of Finance of Canada announced that the CEWS will be extended until December 19, 2020. He also announced major changes to the structure of the CEWS, which, for the time being, should apply until November 21, 2020. Details are expected to follow for the eligibility period from November 22 to December 19, 2020. Summary of changes As the draft legislative proposal has not yet been adopted, the proposed changes may be modified. Duration of the CEWS Pursuant to the legislative proposal, the CEWS would now be available until November 21, 2020, and CEWS applications may be accepted until February 2021. Eligibility The concept of eligible entity remains the same, except that trusts would now be eligible for the CEWS. The changes to the CEWS are intended to make the eligibility criteria more flexible to enable more employers to benefit from the subsidy. Businesses that do not meet the 30% drop in revenue test would now be eligible to the CEWS. The base rate of the CEWS would now vary depending on the revenue decline’s level, and its application would be extended to employers with a revenue decline of less than 30%. However, despite being more flexible, the criteria would be more complex than those applicable to initial eligibility periods. CEWS’s “base” and “top-up” subsidy The amount of the CEWS for each employee would now vary according to the employer’s drop in revenue, expressed as a percentage. The CEWS would consist of two parts: a “base” subsidy and a “top-up” subsidy. During an eligibility period, the CEWS amount would be calculated by adding the base and top-up percentages, as defined in Appendix A below. Base subsidy: The maximum base CEWS rate would be gradually reduced from 60% in eligibility periods 51 and 6 to 20% for the last period (Period 9). The maximum base CEWS rate would be available for eligible entities that have experienced a revenue drop of more than 50%. It would then be gradually reduced by the percentage of the eligible entity’s revenue decline from the maximum base rate for the relevant eligibility period to zero. For example, for a revenue drop of 50% or more, the maximum CEWS amount would now be 60% for Periods 5 and 6, to be reduced to 50% for Period 7. Top-up subsidy: A maximum top-up subsidy of 25% would be offered in certain cases to provide additional support to companies particularly affected by the crisis. The top-up subsidy would be available to eligible entities that have experienced a revenue drop of more than 50% for a given eligibility period. To be eligible for the maximum top-up subsidy, a revenue drop of 70% or more must be registered for the three months preceding the relevant period. A transitional rule is provided for Periods 5 and 6 to allow eligible employers to elect the most advantageous subsidy, that is, the CEWS rate of 75% under the initial structure with a threshold of 30% or one of 60% (+ potentially 25%) under the new structure. In addition, the special rule providing for automatic eligibility forthe subsequent period would also be modified. Thus, an entity that qualified for Period 3 would automatically qualify for Period 4. However, for subsequent periods, the revenue reduction percentage from the previous qualifying period could be applied if the revenue reduction percentage for the current qualifying period is lower. For example, if an eligible entity had a 45% revenue reduction for Period 6 but its revenue reduction for Period 7 fell to 25%, the entity could benefit from the Period 6 percentage, that is, 45%. The base and top-up CEWS would apply to the remuneration of active employees. A separate CEWS rate structure would apply to furloughed employees. For furloughed employees, for Periods 5 and 6, the CEWS calculation would remain the same as it is now, but would be adjusted for Periods 7 to 9 to harmonize with income support through the Canada Emergency Response Benefit (“CERB”) and/or Employment Insurance. Calculating the CEWS In order to calculate the CEWS, the proposed legislation introduces three new definitions that are further described in Appendix A below. These definitions are used to calculate the base and top-up subsidies. Base percentage (if revenue decline < 50 %) Base percentage (if revenue decline = 50 %) Top-up percentage (if revenue decline > 50 %) CEWS Period 5: July 5 to August 1st, 2020 CEWS Period 6: Period 6 : August 2 to August 29, 2020 1.2 x % decline 60 % 1.25 x (% of revenue decline on preceding three-month average – 50 %) Max 25 % CEWS Period 7: August 30 to September 26, 2020 1 x % decline 50 % 1.25 x (% of revenue decline on preceding three-month average – 50 %) Max 25 % CEWS Period 8: 27 septembre au 24 octobre 2020 0.8 x % decline 40 % 1.25 x (% of revenue decline on preceding three-month average – 50 %)Max 25 % CEWS Period 9: October 25 to November 21, 2020 0.4 x % decline 20 % 1.25 x (% of revenue decline on preceding three-month average – 50 %)Max 25 % CEWS amount The maximum weekly amount per employee would be increased from $847 to a maximum percentage of 85% (maximum base and top-up subsidies) of the lesser of the weekly remuneration paid and $1,129, for a maximum of $960 per week, per employee. This percentage would be reduced according to an eligible employer’s revenue decline. The concept of eligible remuneration would remain the same, but the concept of basic remuneration would no longer apply as of Period 5, except in the case of employees that do not deal at arm’s length with the employer. Other significant changes to the CEWS A variety of other changes were announced, including: An appeal process based on the existing Notice of Determination procedure to make it possible to appeal to the Tax Court of Canada. For example, an employer denied the CEWS in whole or in part could avail itself of the objection and appeal process under the Income Tax Act to challenge the CRA decision in this regard. On June 17, 2020, as part of the economic response plan, the CRA announced that it would begin post-payment audits of CEWS claims as early as September 2020. Employers whose employees are paid through a payroll service provider would now be able to claim CEWS for the salaries of their eligible employees; For reference periods beginning July 5, employees who have not received remuneration for 14 consecutive days would still be granted eligible status; New optional reference periods have been added to each qualifying period to account for the particularities of seasonal businesses; Corporations formed on an amalgamation would be deemed to be the same corporation and a continuation of each of the corporations existing immediately before the amalgamation; Trusts would now be eligible entities; Continuity rules would be introduced to make it possible for employers who have purchased all or substantially all the assets of a business to calculate their drop in revenues for the purposes of CEWS. Labour and employment law considerations As in the previous version of CEWS, an employer would not be required to pay employees the pre-crisis remuneration they were receiving in order to be eligible to the CEWS2. However, it is important to remember that a substantial change in an employee’s working conditions, especially one lasting for an extended period of time, may give rise to allegations of constructive dismissal. An analysis of the employment contract of employees affected by a change in their working hours, remuneration, position or duties is recommended, as well as obtaining legal advice. Considering the elimination of the requirement that an employee should not be “without remuneration from the eligible employer in respect of a period of 14 or more consecutive days in the claim period,” employers will now have more flexibility in terms of call-back dates and employee schedules. Caution is still advised when calling employees back to work. While employer eligibility for CEWS is no longer dependent on the “14-day rule,” employees may still be required to reimburse the CERB benefits received, depending on their income level during the applicable eligibility period. Currently, an employee must reimburse the CERB in the following cases: 1st1 CERB eligibility period Other CERB eligibility periods An employee will be required to reimburse the sum of $2,000 if they have earned or will earn, for at least 14 consecutive days during that period, , more than $1,000 (before deductions) in employment or self-employment income. An employee will be required to reimburse the sum of $2,000 if they have earned or will earn more than $1,000 (before deductions) in employment or self-employment income during this period. Finally, despite CEWS’s rules being more flexible, some employers will have to consider permanently laying off part of their workforce. Legal advice should be obtained in order to assess an employer’s obligations under the employment contracts’ terms and applicable law. Particular considerations also apply to notice and severance pay for an employer benefiting from the CEWS, as the amounts paid generally cannot be subsidized through the CEWS. Lavery’s tax and labour law teams are available to answer all your questions regarding the application of the CEWS and to support in the case of audits by tax authorities. APPENDIX A “Revenue reduction percentage” means the percentage of revenue reduction for the qualifying period relative to revenue for the reference period used to determine eligibility. For qualifying periods beginning July 5, 2020, employers would now have the option of calculating their revenue reduction percentage by electing the greater of: The revenue reduction obtained by comparing the current month with the same month in 2019; and The revenue reduction obtained by comparing the previous month with the same month in 2019. Otherwise, an eligible employer would have the possibility of electing to calculate the revenue reduction percentage by comparing either: The current month and the average of January and February 2020; or The previous month and the average of January and February 2020. Employers would be able to decide which calculation method they wish to use for the qualifying period beginning July 5, regardless of the election they made for qualifying periods prior to that date. The method chosen for the eligibility period beginning July 5 would become mandatory for all subsequent qualifying periods. The reference periods for the purposes of calculating the revenue reduction percentage of an eligible employer would thus be as follows: Reference period (revenue reduction percentage) Optional reference period (revenue reduction percentage) Qualifying period 5: July 5 to August 1, 2020 July 2020 compared to July 2019 or June 2020 compared to June 2019 July or June 2020 compared to the average of January and February 2020 Qualifying period 6: August 2 to August 29, 2020 August 2020 compared to August 2019 or July 2020 compared to July 2019 August or June 2020 compared to the average of January and February 2020 Qualifying period 7 : August 30 to September 26, 2020 September 2020 compared to September 2019 or août 2020 comparé à août 2019 September or August 2020 compared to the average of January and February 2020 Qualifying period 8: September 27 to October 24, 2020 October 2020 compared to October 2019 or September 2020 compared to September 2019 October or September 2020 compared to the average of January and February 2020 Qualifying period 9: October 25 to November 21, 2020 November 2020 compared to November 2019 or October 2020 compared to October 2019 November or October 2020 compared to the average of January and February 2020 “Top-up percentage” is the percentage equal to the lesser of: 25%; 1.25 multiplied by the result of the following subtraction: The average monthly revenue for the last three calendar months divided by the average decrease in revenue compared to their respective reference period; minus 50% The qualifying periods and their corresponding reference periods for the purpose of calculating the top-up percentage are set out in the table below: Qualifying period Reference period (top-up percentage) July 5 to August 1, 2020(Period 5) Average of April to June 2020 compared to the average of April to June 2019 or January and February 2020 August 2 to August 29, 2020(Period 6) Average of May to July 2020 compared to the average of May to July 2019 or January and February 2020 August 30 to September 26, 2020 (Period 7) Average of June to August 2020 compared to the average of June to August 2019 or January and February 2020 September 27 to October 24, 2020(Period 8) Average of July to September 2020 compared to the average of July to September 2019 or January and February 2020 October 25 to November 21, 2020(Period 9) Average of August to October 2020 compared to the average of August to October 2019 or January and February 2020 “Base percentage” means the percentage calculated based on the base percentage defined above and the qualifying period, as set out in the table below: Reference period (base percentage) Base percentage if the revenue reduction percentage exceeds 50% Base percentage if the revenue reduction percentage does not exceed 50% Qualifying period 4: June 7 to July 4, 2020 June 2020 compared to June 2019 or the average of January and February 2020 N/A N/A Qualifying period 5: July 5 to August 1, 2020 July 2020 compared to July 2019 or the average of January and February 2020 60 % 1.2 x revenue reduction percentage Qualifying period 6: August 2 to August 29, 2020 August 2020 compared to August 2019 or the average of January and February 2020 60 % 1.2 x revenue reduction percentage Qualifying period 7: August 30 to September 26, 2020 September 2020 compared to September 2019 or the average of January and February 2020 50 % 1 x revenue reduction percentage Qualifying period 8: September 27 to October 24, 2020 October 2020 compared to October 2019 or the average of January and February 2020 40 % 0.8 x revenue reduction percentage Qualifying period 9: October 25 to November 21, 2020 November 2020 compared to November 2019 or the average of January and February 2020 20 % 0.4 x revenue reduction percentage As set out in the table above, the base percentage rate, and therefore the total amount of CEWS paid relative to an employee’s salary, would gradually decrease over the qualifying periods. The maximum CEWS for an employee’s salary for a given week in the last qualifying period beginning October 25, 2020, would be $508. New CEWS calculation For qualifying periods beginning August 30, the amount of the CEWS that may be claimed for each employee would be calculated as follows: If the employee deals at arm’s length with the employer and is not on paid leave in a particular week: The percentage obtained by adding the base percentage and the top-up percentage for the qualifying period multiplied by the lesser of: The remuneration paid in respect of that week; and $1,129.00. If the employee does not deal at arm’s length with the employer and is not on paid leave for a particular week: The lesser of: The eligible amount of remuneration paid in respect of that week; An amount prescribed by regulation; and $0 if both the revenue reduction percentage and the top-up percentage are 0%. Eligibility periods: March 15, 2020, to April 11, 2020 (Period 1), April 12, 2020, to May 9, 2020 (Period 2), May 10, 2020, to June 6, 2020 (Period 3), June 7, 2020, to July 4, 2020 (Period 4), July 5, 2020, to August1, 2020 (Period 5), August 2, 2020, to August 29, 2020 (Period 6), August 30, 2020, to September 26, 2020 (Period 7), September 27, 2020, to October 24, 2020 (Period 8), and October 25, 2020, to November 21, 2020 (Period 9). It should be noted that the government strongly encouraged businesses to supplement employee remuneration to bring it back to pre-crisis levels wherever possible.
Sale of a Business: New Tax Planning Option
The sale of a business is often the most significant business transaction in an entrepreneur’s life. In addition, the net proceeds from such a sale often represent an entrepreneur’s only retirement fund. Therefore, it is crucial to maximize such proceeds by reducing or deferring the taxes resulting from the transaction as much as possible. The Canada Revenue Agency (“CRA”) recently reversed an administrative position that it had expressed in 2002 with respect to beneficial tax planning as part of the sale of a business. This change in its rather technical administrative position opens the door to very effective tax planning that offers real tax deferral opportunities to business owners wishing to sell their business. Consider the following example: Sale of 100% of shares to a third party without prior planning Ms. Tremblay wishes to sell 100% of the shares of her company (“Opco”) to a third party for their fair market value (“FMV”) of $10 million. These shares have an adjusted cost base of $1.00. Ms. Tremblay’s direct sale of 100% of Opco shares to a third party would result in a capital gain of approximately $10 million and total income taxes of approximately $2.7 million, assuming that her capital gain is not eligible for the capital gains exemption. In this scenario, Ms. Tremblay would be left with a sum of approximately $7.3 million after taxes. Sale of shares with the newly approved prior tax planning In the second scenario, prior to the sale to the third party, Ms. Tremblay would create a management company (“Gesco”) and transfer 50% of Opco shares to it on a rollover basis, with no immediate tax consequences. Gesco would then internally exchange Opco shares in order to realize a $5 million capital gain within Gesco, resulting in income taxes of approximately $1.26 million for Gesco, a portion of which would later be refunded through the use of a non-eligible refundable dividend tax on hand account. Subsequently, Ms. Tremblay would sell her remaining 50% of Opco shares to Gesco in two transactions of 25% each, both payable by a promissory note equal to the FMV of the shares—in our example, $2.5 million per transaction. Ms. Tremblay would then be deemed to have received two dividends of $2.5 million each. The first would be designated as a capital dividend by Gesco and would therefore be tax-free for Ms. Tremblay. The second would be designated as an ordinary (non-eligible) dividend, resulting in total income taxes of approximately $1.18 million for Ms. Tremblay. The designation of the second dividend as an ordinary dividend would result in a refundable dividend tax on hand for Gesco of approximately $766,000. Gesco, owning 100% of Opco shares having an adjusted cost base equal to their FMV, would sell them to a third party for a sum of $10 million, generating no additional capital gain within Gesco. By using the tax mechanisms of a capital dividend account and a non-eligible refundable dividend tax on hand account, the sale of Opco shares would result in total income taxes of approximately $1.67 million, split between Ms. Tremblay and Gesco. Ms. Tremblay would then be left with proceeds of $3.82 million after taxes, while Gesco would be left with $4.51 million after taxes. Given that Ms.Tremblay would keep funds within Gesco, she would be able to defer the time at which she would be taxed on them, that is, when Gesco would pay her a dividend. In the meantime, she could make investments through Gesco. This type of planning would result in a tax deferral of almost 38% of the income taxes that, without prior planning, would have been payable on the sale of the shares. Our taxation team will be happy to answer all your questions and advise you on the most appropriate tax planning for your business. The information and comments contained herein do not constitute legal advice. They are intended solely to enable readers, who assume full responsibility, to use them for their own purposes.
COVID-19: Support for Agriculture and Agri-Food Businesses in Quebec and Canada
It goes without saying that the economic upheavals caused by the COVID-19 pandemic are posing countless challenges for all companies, whether or not they are pursuing their activities within the limits imposed by the governments of Canada and Quebec. Food producers such as agricultural and food processing businesses, considered by the Quebec government to be essential services, are not exempt from this harsh reality. In this context, different levels of government and certain key economic actors have taken critical measures to support and protect businesses in the agriculture and agri-food industry, which are vital to both the health of individuals and that of the Canadian and Quebec economies. This bulletin presents the various support measures specific to agri-food industry businesses, which may also be eligible for general tax and economic support measures announced in response to COVID-19, including the Canada Emergency Wage Subsidy (CEWS). Canadian measures Recruitment support Many food producers depend on the additional input of foreign labour during the summer months. To offset the impact of the mandatory 14-day isolation period for anyone arriving from abroad, the Canadian government is providing financial assistance of $1,500 to such producers for each temporary foreign agricultural worker arriving in Canada to work. This financial assistance is conditional on compliance with the mandatory isolation period or other public health guidelines. Financial support The Government of Canada has also increased Farm Credit Canada’s (FCC) capital base by $5 billion in order to increase its lending capacity for agribusinesses and food producers and processors. For existing borrowers, FCC offers: Deferral of principal and interest payments for up to 6 months or deferral of principal payments for up to 12 months; and Access to an additional secured line of credit up to a maximum of $500,000 (for Quebec borrowers only). FCC offers term loans of up to $2.5 million,with no fees, to any Canadian agriculture and agri-food business whose working capital or production is impacted by COVID-19. Borrowers have the option of paying interest only for 18 months and benefit from a 10-year amortization period. The Government of Canada additionally announced support measures for farm producers, agri-food businesses and the food supply chain, which consist of the following: A sum of $77.5 million to help food processors purchase protective equipment and adapt work areas; A $125 million injection into the AgriRecovery program to cover additional costs to meat producers; A budget of $50 million to buy back certain surpluses, including potatoes and poultry; An increase of $200 million in the Canadian Dairy Commission’s borrowing limit to support temporary storage costs for butter and cheese; Financial assistance of $62.5 million for the fish and seafood processing industry; and Income support for fishers who are not eligible for the Canada Emergency Wage Subsidy, in the form of benefits and subsidies. The Canada Emergency Wage Subsidy On May 15, 2020, the Government of Canada announced its intention to amend the legislation on the CEWS to include measures to increase support for employers that hire seasonal employees. These new provisions, once they are passed, will give employers that are eligible for the CEWS two options for the calculation of their eligible employees’ average “baseline remuneration”: (1) the period from January 1 to March 15, 2020, or (2) the period from March 1 to May 31, 2019. In both cases, any period lasting seven days or more without remuneration will be excluded from the calculation. To be eligible, the employees must not be residents of Canada. Quebec measures The reality of COVID-19 is demonstrating that the success of the agriculture and agri-food industry is one of the Government of Quebec’s top priorities, as it is for the population in general. Recruitment support On April 17, 2020, the Government of Quebec announced that it will pay a premium of $100 per week to anyone taking on work for farmers between April 15 and October 31, 2020. As of April 22, 2020, close to 2,300 Quebecers had applied for such positions, the government’s goal being to encourage 8,500 people to get involved. Financial support La Financière agricole du Québec (FAQ), a government organization serving the agricultural and agri-food industry, has also implemented exceptional measures: Loans of up to $50,000 to support farm producers experiencing liquidity problems related to COVID-19; A six-month moratorium on loan repayments; Interim payments increased to 75% under the AgriStability program to ensure that program benefits are quickly available; Notices of assessment for the Farm Income Stabilization Insurance Program deferred to July 1, 2020; Deadline to enrol in the Crop Insurance Program extended from April 30 to May 21, 2020. Deadline to apply for the Agristability Program extended from April 30 to July 3, 2020. Notices of assessment for the Crop Insurance Program deferred from June 1 to July 1, 2020; Investment grant payments under many FAQ programs moved up from June1 to May 1, 2020. Finally, the investment company Fondaction, whose mission is to practice socially responsible development, has undertaken to allocate $40 million to Quebec SMEs in the agricultural and agri-food industry over the next year. In addition, Fondaction has made its financing offer more flexible in order to provide support to industry businesses that are solid and growing, provided that they were profitable before COVID-19. Such businesses can apply for assistance from Fondaction to finance any project of $500,000 or more requiring development capital. The Lavery team is committed to supporting your agricultural and agri-food business. We are available to answer all your questions regarding the announced measures, how they affect your business and any aspect relating thereto. The information and comments contained herein do not constitute legal advice. They are intended solely to enable readers, who assume full responsibility, to use them for their own purposes. The information and comments contained in this document are limited to measures in Quebec or Canada announced or made public on or before June 4, 2020.
Bill C-14 has become law: Are you eligible for the Canada Emergency Wage Subsidy?
On March 30, 2020, the Government of Canada announced that it would grant the Canada Emergency Wage Subsidy (the “CEWS”) to qualifying entities, no matter their number of employees or their size. Bill C-14 bringing into effect the CEWS, received royal assent on April 11, 2020. The Government of Canada will subsidize 75% of the first $58,700 of each employee’s wages, for a maximum amount of $847 per week. This measure is retroactive to March 15, 2020. For now, the CEWS covers a 12-week period from March 15, 2020, to June 6, 2020, inclusive. The Canada Emergency Wage Subsidy does not abolish the Temporary Wage Subsidy for Employers, but entities that receive it for a given period will see the CEWS reduced. For more information on the Temporary Wage Subsidy for Employers, click here. Qualifying entities Pursuant to subsection 125.7(1) of the Income Tax Act1 (the “ITA”), to qualify for the CEWS, an entity must first be an “eligible entity.” Eligible entities are the following: Taxable corporations; Individuals; Registered charities (other than a public institution); Partnerships whose members are eligible entities; Agricultural organizations, boards of trade or chambers of commerce2; Non-profit corporations for scientific research and experimental development3; Labour organizations4; and Non-profit organizations5. Subsidies of foreign corporations are also eligible for the CEWS under the same conditions, provided they are incorporated under the laws of Canada. Excluded entities Public institutions6, such as municipalities and local administrations, crown-controlled corporations, public universities, colleges, schools and hospitals, are not eligible for the CEWS. As such, a partnership of which a member is an excluded entity, such as a crown-controlled corporation, would not be eligible for the Canada Emergency Wage Subsidy. Eligibility criteria To qualify for the CEWS, eligible entities will have until October 2020 to file an application for the qualifying periods. Filing will take place via a specific application process. Additionally, a person who has the principal responsibility for the eligible entity’s finances will have to attest that the Canada Emergency Wage Subsidy application is complete and accurate in all material respects. In order to qualify for the CEWS, an eligible entity should also have had a business number before March 15, 2020, for source deductions7 purposes. An eligible entity will need to demonstrate a drop in revenue of at least 15% for the qualifying period of March 2020 and of 30% for each subsequent qualifying period. Qualifying periods and reference periods for eligibility Eligible entities must use one of two methods to attest to the drop in revenue. Eligible entities must compare a current qualifying period to a past qualifying period via either: A year-to-year method (e.g., March 2020 compared to March 2019); or The average of its revenue earned in January and February 2020. An election will need to be made between these two methods in the entity’s first CEWS application. Eligible entities will have to use the same method for the whole duration of the program. Here is the list of the qualifying periods and the corresponding reference periods as announced on the Canada Revenue Agency’s website8: Claiming period Reference period for eligibility Period 1 March 15 – April 11 (reduction of 15%) March 2020 over: March 2019; or Average of January and February 2020. Period 2 April 12 - May 9 (reduction of 30%) April 2020 over: April 2019; or Average of January and February 2020. Period 3 May 10 – June 6 (reduction of 30%) May 2020 over: May 2019; or Average of January and February 2020. The law provides that additional qualifying (and reference) periods could be added via regulation until September 30, 2020. Accounting method The eligible entity’s normal accounting method should be used to determine qualifying revenue. Entities can calculate their revenue according to either the accrual method or cash method but not a combination of both. Entities must choose an accounting method when filing their first CEWS application and will have to use the same method for the whole duration of the program. The legislation defines qualifying revenue, for the purposes of the comparison between the prior reference period and the current reference period, as “the inflow of cash, receivables or other consideration arising in the course of the ordinary activities of the eligible entity — generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity — in Canada in the particular period”9. Revenue must be gained from business conducted in Canada and arise from arm’s length sources. Extraordinary items and sums obtained or derived from a non-arm’s length person or partnership are excluded from the computation of revenue. Non-resident entities are not eligible for the CEWS unless they are taxable in Canada. Revenue from sales or transfers between non-arm’s length persons are excluded. An exception to this principle may apply to certain holding corporations. The amount of the Canada Emergency Wage Subsidy received for a qualifying period is not included in the calculation of eligible revenue for the subsequent qualifying period, of course. However, amounts received pursuant to the CEWS will reduce other incentives under tax legislation, like the SR&ED tax incentive program. Registered charities and non-profit organizations For registered charities, non-profit organizations, labour organizations, non-profit organizations for scientific research and experimental development, agricultural organizations, board of trades and chambers of commerce, the computation of revenue must include amounts received during its normal activities, which includes gifts and membership fees. These entities will be authorized to choose whether or not to include funds received from government. Once chosen, an accounting method must be applied for the whole duration of the program. Computation of qualifying revenue The calculation of qualifying revenue should normally be done entity by entity. Consolidated financial statements However, for an entity that is a part of a group of eligible entities that normally prepare consolidated financial statements, each member of this group may determine its qualifying revenue separately if it normally does so. Also, each entity of an affiliated group can make an election to establish its qualifying revenue on an individual basis. For such an election to be valid, every entity of the affiliated group must elect to establish its revenue on an individual basis. Joint ventures The ITA allows for a flow-through mechanism for participants of a joint venture qualifying as an eligible entity even if this joint venture is otherwise considered distinct from its members: If all of the interests in an eligible entity are owned by participants in a joint venture and all or substantially all (meaning 90% or more) of the qualifying revenue of the eligible entity for a qualifying period is in respect of the joint venture, then the eligible entity may use the qualifying revenues of the joint venture. Holding companies A joint election may also be filed in cases where all or substantially all (meaning 90% or more) of an eligible entity’s revenue arises from one or several non-arm’s length persons or partnerships. This mechanism is mainly aimed at holding companies providing services to other entities in a related group and whose revenue should otherwise be excluded pursuant to the “non-arm’s length source” criterion. A formula is provided for in the ITA, containing several presumptions in order to consider transactions with Canadian and foreign entities. Deeming provision for subsequent reference period Qualifying entities must file a new application for each qualifying period. The Canada Emergency Wage Subsidy will be paid monthly by cheque or direct deposit. A deeming rule is provided for in the ITA. When an eligible entity meets the qualifying revenue criteria for a qualifying period, a provision found in subsection 127(9) of the ITA deems the eligible entity to have met the qualifying revenue criteria for the immediately following qualifying periods. In other words, if for the qualifying period of March 15 to April 11, 2020, the entity has demonstrated and attested to a reduction of 30% of its revenue, the entity will be deemed to satisfy this condition for the next qualifying period of April 12 to May 9, 2020. Eligible employees Pursuant to subsection 127(1) of the ITA, an eligible employee is an individual who has been employed in Canada by an eligible entity during a qualifying period and who has not been without remuneration for a period of fourteen (14) or more consecutive days during this qualifying period. Eligible remuneration Eligible remuneration for the purposes of the CEWS includes wages, salaries and other remuneration10. In addition, professional fees, commissions and other amounts for services provided are eligible11. The following forms of remuneration are excluded: Retirement allowances; Amounts deemed to have been received by the eligible employee as a benefit under or because of a stock-option plan12; Any amount received that can reasonably be expected to be paid or returned, directly or indirectly, in any manner whatever, to the eligible entity, a person or partnership not dealing at arm’s length with the eligible entity, or another person or partnership at the direction of the eligible entity; and Any amount paid in respect of a week in the qualifying period, if, as part of an arrangement involving the eligible employee and the eligible entity, the amount is in excess of the eligible employee’s baseline remuneration, after the qualifying period, the eligible employee is reasonably expected to be paid a lower weekly amount than their baseline remuneration, and one of the main purposes for the arrangement is to increase the amount of the CEWS. As such, any arrangement to improperly benefit from the CEWS will be excluded from eligible remuneration. For the purposes of the Canada Emergency Wage Subsidy, eligible remuneration is computed using the average weekly remuneration paid to an eligible employee between January 1 and March 15, 2020, inclusively (the “baseline remuneration”). An exclusion is provided for any period of seven (7) days during which the eligible employee has not received any remuneration. There is no limit to the total amount of CEWS that an entity might claim. The CEWS applies to the first $58,700 of annual salary paid to each eligible employee, computed employee by employee. Under subsection 125.7(2) of the ITA, the CEWS is equal to the greater of the following amounts: 100% of remuneration paid, up to the lesser of the following amounts: 75% of the average weekly remuneration that the employee received before March 15, 2020; and 75% of weekly remuneration paid, up to $847 per week. Employees not dealing at arm’s length with the eligible entity If an eligible employee is not dealing at arm’s length with the eligible entity and he or she has not received eligible remuneration before March 15, 2020, he or she will not be eligible for the CEWS. Only 75% of the remuneration paid before March 15, 2020 will be eligible. This is aimed at preventing persons not dealing at arm’s length from increasing their salaries after March 15, 2020 to increase the amount of the CEWS they would be eligible to received. Example of a CEWS application Baseline weekly remuneration between January 1 and March 15, 2020 = $60,000 Average remuneration after March 15, 2020 = $60,000 % of remuneration paid % before March 15 Greater of: (A) 100% (B) 75% (C) 75% (A) up to the lesser of (C) and $847 (B) up to $847 Week applied for : 03/13-03/21 $1,153.85 $865.38 $865.38 $847 Week applied for : 03/22-03/28 $1,153.85 $865.38 $865.38 $847 Week applied for : 03/29-04/04 $1,153.85 $865.38 $865.38 $847 Week applied for : 04/05-04/11 $1,153.85 $865.38 $865.38 $847 Total CEWS for the eligible employee $3,388 The CEWS is equal to 73.40 % of remuneration paid. The net cost for the eligible entity is 26.60% (+ payroll contributions except if the employee is on leave without pay). Reduction in wages after March 15 If the baseline remuneration of the eligible employee was $60,000 prior to March 15, 2020 but, by agreement, the salary after March 15, 2020 is reduced to $40,000, the CEWS would then be $769, 23. In this example, the CEWS is equal to 100% of the remuneration paid after March 15, 2020 with a net cost to the eligible entity of $0. % of remuneration paid % before March 15 Greater of: (A) 100% (B) 75% (C) 75% (A) up to the lesser of (C) and $847 (B) up to $847 Week applied for: 03/13-03/21 $769.23 $576.92 $865.38 $769.23 Week applied for: 03/22-03/28 $769.23 $576.92 $865.38 $769.23 Week applied for: 03/29-04/04 $769.23 $576.92 $854.38 $769.23 Week applied for: 04/05-04/11 $769.23 $576.92 $854.38 $769.23 Total CEWS for the eligible employee $3,076,92 New Employee Should the eligible entity hire a new employee for a salary of $40,000 per year, the CEWS received in respect of this employee would be equal to $576.92 (75% of remuneration paid). Payroll contributions reimbursed under certain circumstances Certain employer-paid contributions can be reimbursed. This reimbursement would apply to the entirety of employer-paid contributions in respect of eligible employees, for each week during which these employees are on leave with pay and for which the entity qualifies for the CEWS regarding these employees. These contributions include: Employment Insurance; The Canada Pension Plan; The Québec Pension Plan; and The Québec Parental Insurance Plan. Eligible entities should continue to withhold and remit both employee and employer contributions as usual. They will then be able to claim a reimbursement at the same time as the CEWS. The Government of Canada has announced that entities benefiting from the CEWS will have to demonstrate having “done their best” to pay the remaining 25% of wages not covered by the CEWS to their employees. This criterion will be evaluated with flexibility in order to take into account the financial struggles of businesses. As of now, nothing with respect to this 25% is mentioned in the ITA. The CEWS will be deemed as taxable income for the entities benefiting from the program. Employees benefiting from the CEWS will be taxed at the source. How to apply An online portal will be launched between two (2) to five (5) weeks from now, for eligible entities to file a claim for the CEWS. Qualifying entities will be able to apply for the CEWS through the Canada Revenue Agency's My Business Account portal. The Minister of Finance will be able to communicate the name of any person or partnership that applies for the CEWS. More information should be released shortly. Anti-avoidance and penalties Specific anti-avoidance rules are provided for by the legislation. Also, in case of ineligibility, an employer must reimburse the amounts received. In case of abuse of the program, a penalty of up to 25% of amounts received could be imposed (up to 225% when computing all penalties that could be applied under the ITA), with the possibility of a prison sentence of up to 5 years. Eligible employees and interaction of the CEWS with the Canada Emergency Response Benefit The Government of Canada is considering putting in place a process allowing employees rehired by their employers during the same qualifying period to cancel their application for the Canada Emergency Response Benefit and to reimburse any amounts received pursuant to this program. Lavery’s team is available to answer any question you may have regarding the announced emergency measures as well as any related aspects. The information and commentaries contained in the present document do not constitute a legal opinion. Their sole purpose is to allow readers, who bear all responsibility, to use them for their own ends. The information and commentaries contained in this document are limited to the measures announced or made public by the Government of Québec and the Government of Canada on or before April 13, 2020. R.S.C. (1985), c. 1 (5th Suppl.) As defined in paragraph 149(1)(e) of the ITA As defined in paragraph 149(1)(j) of the ITA As defined in paragraph 149(1)(k) of the ITA As defined in paragraph 149(1)(l) of the ITA As defined by paragraphs 149(1)(a) to 149(1)(d.6) of the ITA Under section 153 of the ITA Source: https://www.canada.ca/en/department-finance/news/2020/04/the-canada-emergency-wage-subsidy.html [to date as of April 13, 2020] Definition of “Qualifying revenue” in section 125.7 of the ITA Under paragraph 153(1)a) of the ITA Under paragraph 153(1)g) of the ITA Under paragraphs 7(1)(a) to (d.1) of the ITA
COVID-19: Summary of Quebec and Federal Tax Measures and Financial Assistance
Download your reference page of the financial aids put in place in Quebec and Canada The ongoing COVID-19 pandemic is forcing different levels of government to institute measures to reduce the burden on taxpayers and protect the economy. The following is a summary of the principal measures announced to date: Measures with respect to tax deadlines in Québec and Canada; Measures relating to businesses; Measures with respect to employees and self-employed individuals; Measures pertaining to judicial and administrative time limits. Measures to ease tax deadlines in Quebec and Canada On March 18 and March 27, 2020, the Minister of Finance of Canada announced the extension of filing deadlines for certain income tax returns and of payment deadlines for certain amounts owing for individuals, trusts and corporations for federal income tax purposes. The Minister of Finance of Québec matched the federal deadline extensions for provincial income tax purposes on the same day. Individuals New deadlines (Quebec and Canada) Income tax return filing June 1, 2020 For individuals conducting unincorporated businesses (and their spouse or partner) the deadline is June 15, 2020. Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 QPIP/QPP/HSF/RAMQ contributions For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 (Quebec only) Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Trusts (other than specified investment flow-through trusts) New deadlines (Quebec and Canada) Income tax return filing May 1, 2020 Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 QPIP/QPP/HSF/RAMQ contributions For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 (Quebec only) Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Corporations New deadlines (Quebec and Canada) Income tax return filing New deadline for tax returns normally due before May 31 is June 1, 2020 Payment of income taxes For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Instalment payments For any balance that would normally be due on March 18, 2020, the new payment date is extended to September 1, 2020 Payment of QST/GST For payments of QST/GST normally due on March 31, April 30 and May 31, the new deadline is June 30, 2020. Source deductions No measure has been announced to date Partnerships New deadlines (Quebec and Canada) Filing of Partnership Information Return T5013/TP-600-v May 1, 2020 Not-for-profit organizations and registered charities New deadlines (Canada only) Filing of Information Return T3010 December 31, 2020 Person making a payment to a non-resident New deadlines (Canada only) Filing of Statement of Amounts Paid or Credited to Non-Residents of Canada (NR4) May 1, 2020 Deadlines for payments of import and export fees have been extended to June 30, 2020. Deadlines regarding filings and payments of tax on lodging otherwise due before April 30, 2020 are postponed to July 31, 2020. Deferral of tax payments in many Québec municipalities Many Québec municipalities have decided to defer municipal tax payment deadlines in order to reduce the burden on taxpayers. Here are the new deadlines set by some of them: Municipalities New deadline for the next tax payment Montréal July 2, 2020 Lévis Interest on balances owing will be suspended until May 30, 2020 City of Québec Payments due on May 4, July 3 and September 3, 2020 are postponed until August 4, September 3 and November 3, 2020, respectively. Trois-Rivières September 8, 2020 Longueuil Payments due on April 6, June 6 and September 8, 2020 are postponed until May 6, July 6 and September 8, 2020, respectively. Gatineau Payments that were due on March 31 and June 30 are postponed until August 31, 2020 Sherbrooke Payments due on May 4, July 3 and September 3, 2020 are postponed until August 4, October 3 and December 3, 2020, respectively. Laval September 1, 2020 for the 1st and 2nd payments. Measures concerning businesses In Québec Concerted temporary action program for businesses (PACTE) On March 20, 2020, the Government of Québec announced a temporary program administered by Investissement Québec aiming to facilitate access to credit for businesses in the form of a loan guarantee. Businesses that are already clients of Investissement Québec can communicate directly with their project director or account manager by email or by phone using the online directory. Businesses that are not clients of Investissement Québec and that wish to benefit from such a loan guarantee must first contact their financial institution, which will itself contact an Investissement Québec account manager. Any questions on a specific situation regarding this program should be directed to Investissement Québec’s client centre, reachable at 1 844-474-6367. Caisse de dépôt et placement du Québec’s 4 billions dollars fund The Caisse de dépôt et placement du Québec (CDPQ) announced, on March 30, 2020, the creation of a 4-billion-dollar fund to assist Québec businesses temporarily affected by COVID-19. This financing will take diverse forms, which are not yet specified. In order to qualify for this financing, businesses must: Have been profitable before the beginning of the COVID-19 crisis; Have promising growth perspectives in their sector; Seek a minimum financing of 5 million dollars or more. Businesses that want to apply for this financing may do so by filing an online form. Accelerated treatment and payment of certain tax credits The Government of Québec and Revenu Québec have put in place several administrative measures aiming to supplement businesses’ cash flow. These measures are further described below. Concerted Action to Maintain Employment Program (CAMEP) (New) On April 6, 2020, the Government of Québec announced a new subsidy program of 100 million dollars aimed at helping businesses impacted by COVID-19 pandemic by supporting workforce skills development. The CAMEP is a two-pronged measure: Business Component, which targets businesses by supporting the business’s own activities aiming to improve human resources management and workforce skills. This support will take the form of financing of online or in-person training activities (subject to regulation on physical distancing set by Public Health Authorities), through reimbursement of eligible expenditures. Collective Promoters Component which targets organizations that offer a collective approach to meet the training needs of businesses and the workforce. A Collective Promoter is a group of employers or workers able to create employment-related projects and who can supervise or ensure their implementation, such as sectoral labour committees, training mutual and recognized employers’ associations, legally constituted workers’ associations, etc. Eligibility criteria The following entities will be eligible to CAMEP: Employers; Self-employed workers (whether or not they are incorporated) employing other workers; Workers’ and employers’ associations; Professional groupings; Group of employers; Group of workers; Collective Promoters recognized by the Commission des partenaires du marché du travail for the Collective Promoters Component of CAMEP; Cooperatives; Economic social enterprises; and Not-for-profit organization and community organization. Eligible training activities The following types of training activities offered by an entity listed above will be eligible to CAMEP: Basic employee training; Francization; Digital-skill training; Continuing education on business activities, no matter if they are related or not to the actual position of the trainee; Training encouraged by a professional order; Training essential to the resumption of business activities; Training related to a strategic shift in business activities in the context of economic uncertainties caused by COVID-19 and aiming to maintain or diversify business’ activities; and Re-qualification training for workers. Eligible expenditures The following expenditures, engaged by an entity listed above in the course of an eligible training activity will be eligible to CAMEP: Salaries and wages of workers (excluding social benefits) for a maximum of $25 per hour; Professional fees of consultants or trainer for a maximum of $125 per hour; Indirect fees for trainers (meals, transportation, accommodations, etc.) at real cost; Indirect fees for workers in training (transportation, meals, accommodations, etc.) at real cost; Elaborating, adapting or purchasing of training material, at real cost; Adapting of an in-person training course into an online training course; Registration or subscription fees of an online platform, at real cost; If applicable, fees related to management activities (banking fees, training material) paid by the delegated entity up to 10 % of those fees; Diagnostic of the human resources functions and, if applicable, of other management functions (Business Component only); Consultant fees in human resources management (organizational communication, telecommuting, etc.) (Business Component only); and Coaching and management training (Business only). Eligible expenditures, subject to certain exceptions regarding salaries and wages that will be explained further in this section, will give rise to a reimbursement of: 100 % of eligible expenditures on the first $100,000 or less; 50 % of eligible expenditures between $100,000 and $500,000. Reimbursement of salaries and wages: interaction between CAMEP and other wage-based subsidies granted by the Government of Québec or Canada The reimbursement terms of salaries and wages as eligible expenditures vary depending on the other wage-based subsidies granted by the Government of Québec or Canada that a business receives. Terms announced as of April 6, 2020, are the following: 25 % of total salaries and wages of employees in training (up to a maximum of $25 per hour), if the business receives the Canada Emergency Wage Subsidy of 75 % described below; 90 % of total salaries and wages of employees in training, if the business receives the Temporary Wage Subsidy for Employers of 10 % described below; 100 $ of salaries and wages of employees in training if the business receives no wage-based subsidy from the Government of Québec or Canada. Duration of CAMEP Projects detailing eligible training activities must be submitted to Services Québec. Services Québec will accept new projects until September 30, 2020, or until the $100 million dollars envelope runs out. Eligible training activities are not subject to a minimum or maximum duration. Further details concerning this measure are expected to be announced within the next few days. Small and Medium Businesses Emergency Aid (Québec) (New) This program aims to relieve SMBs experiencing financial difficulties due to the present COVID-19 crisis through loans of up to $50,000. Eligible Businesses Businesses operating in all sectors, including social economy enterprises, cooperatives, and nonprofit organizations conducting commercial activities are eligible under the following conditions: They are in business in Québec since at least one year; They are temporarily closed, on the brink of closing or showing warning signs of imminent closure; They are in a context of maintaining, consolidating or reviving their activities; They are able to demonstrate a direct link between their financial difficulties and the present COVID-19 crisis. Businesses under the protection of the Companies’ Creditors Arrangement Act (R.S.C., 1985, c. C-36) or of the Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) are excluded from this program. Eligible Financing Financing granted by this program aims to relieve businesses’ cashflow needs and is determined based on reasonable and documented expenses. Cashflow needs must be caused by either: Impossibility or substantial reduction of the capacity to deliver products (goods or services) or merchandise. Financing will take the form of a loan guarantee of up to $50,000 How to Apply Businesses wishing to benefit from this program must contact their Regional County Municipality (RCM), their municipality’s office or the organization in charge of administering their RCM’s Local Investment Funds. Flexibility towards loans granted by Local Investment Funds (Québec) (New) A 6-month moratorium on reimbursement (both capital and interests) of loans granted by Local Investment Funds. Interests accrued during this period will be capitalized. This measure is in addition to the previously announced moratoriums related to the investment policies of most Local Investment Funds. In Canada Canada Emergency Wage Subsidy (CEWS) (New) The Government of Canada announced, on March 30, that it will grant a temporary wage subsidy, the Canada Emergency Wage Subsidy (the “CEWS”), to eligible employers, no matter their size and number of employees. Bill C-14 adopting the CEWS has been sanctioned on April 11, 2020. The Government of Canada will subsidize the first 75% of pre-crisis wages or salaries of existing employees, to a maximum salary of $58,700, amounting to a maximum amount of $847 per week, per salary. This measure is retroactive to March 15, 2020. As of now, this measure covers a twelve-week period, from March 15, 2020, to June 6, 2020, inclusively. The CEWS does not abolish the Temporary Wage Subsidy described below. An eligible employer who received an amount via the Temporary Wage Subsidy will see the amount of his CEWS reduced accordingly. For more details concerning he CEWS as well as examples of calculation of CEWS amount, read our complete CEWS brief here. Temporary Wage Subsidy for Employers Announced on March 18, 2020, the Temporary Wage Subsidy for Employers allows eligible employers (in respect to this specific measure, notwithstanding the status, or lack thereof, of eligibility to the CEWS described above), to reduce payments of source deductions of an amount equivalent to 10 % of remuneration paid between March 18 and June 20, 2020, for a maximum amount of $1,375 per eligible employee and a maximum total amount of $25,000 per eligible employer. Eligible employers are: Individuals (excluding trusts); Canadian-controlled private corporations (“CCPCs”) which taxable capital in Canada for the previous taxation ear (including associated corporations) is inferior to $15 million dollars; Registered charities; Not-for-profit organization; and Partnerships the members of which are eligible employers. Notably, this measure is a diminution of source deduction payments and does not incur any injection of cash in the eligible employer’s business: no check or electronic transfer will be paid to an employer in application of this measure. This measure does not allow to reduce payments of contributions to the Canadian Pensions Plan, Employment-Insurance premiums or payments due to Revenu Québec. Eligible employers are allowed to reduce payments of source deduction for the first payment period concerning remuneration paid from March 18 to June 20, 2020. Should the amounts of the subsidy for an eligible employer for the period exceed the amounts of source deduction due for the period, the eligible employer will be allowed to reduce payment of source deductions beyond the end of the period, after June 19, 2020. This measure does not alleviate employers’ obligations to remit income tax deduction (beyond the subsidy amount computed using the method described above), to contribute to the Canadian Pensions Plan and to pay Employment-Insurance premiums. The amount of this subsidy that will be deducted from an eligible employer’s source deduction will be included in the employer’s taxable income for the year. No registration or filing is needed to benefit from this measure. However, employers will have to keep supporting records, which include: the total remuneration paid between March 18, 2020, and June 20, 2020; the amount of federal, provincial and territorial income tax that was deduced from that remuneration; and the number of employees paid in the period. The Government of Canada announced that organizations that are not eligible to the CEWS described above may still be eligible to the Temporary Wage Subsidy for Employers. Amounts deducted from source deductions by virtue of this measure will diminish any amount due to an employer by virtue of the CEWS, thus eliminating duplication of benefits. Canada Emergency Commercial Rent Assistance (CECRA) The Government of Canada has announced its intention to introduce the CECRA in order to provide loans, including forgivable loans, to commercial property owners who in turn will lower or forgo the rent of SMBs for the months of April (retroactive), May and June, 2020. A partnership between the Government of Canada and the provincial governments will be necessary to administer this program, as regulation of owner-tenant relationships is a private law matter. Announcements detailing these measures should followin the coming days. Canada Emergency Business Account – Loan guarantee of $40,000 to SMBs (New) On March 27, 2020, the Government of Canada announced that SMBs and not-for-profit organizations will be able to take out a government-backed loan from private banks up to a maximum of $40,000. These loans will be interest-free for a year. To be eligible, businesses will have to demonstrate that they had a total payroll ranging between $50,000 and $1 million for 2019. The reimbursement of this loan before December 31, 2022, will incur a write-off of 25% of the debt, for a maximum write-off of $10,000. Easing of the cash reserve requirements for financial institutions ($300 billion of additional funds) (Canada) The Office of the Superintendent of Financial Institutions has relaxed the rules concerning the mandatory cash reserves of Canadian financial institutions. This measure will increase the loaning capacity of Canadian large banks up to $300 billion and will facilitate access to credit for borrowers. Co-Lending Program for Small and Medium-sized Enterprises The BDC and certain financial institutions will co-lend to SMBs in order to fund their operational expenses and cash-flow needs. The BDC will loan a maximum amount of $5 million per loan. Eligible financial institutions will be responsible for managing this program and will be the point of contact with clients. New Loan Guarantee for Small and Medium-sized Enterprises EDC will guarantee new operating credit and cash flow term loans that financial institutions extend to SMBs up to $6.25 million. Measures for employees and self-employed individuals In Québec Temporary Aid for Workers Program (PATT) The Government of Québec announced on April 8, 2020 that the PATT program will end as of April 10, 2020, due to the introduction, by the Government of Canada, of the Canada Emergency Response Benefit. Incentive Program to Retain Essential Workers (IPREW) The Government of Québec announced a new financial aid granted to essential workers during the period of the COVID-19 crisis, aimed at compensating differences between worker’s normal salary and the CERB. The IPREW consists of a payment of $100 per week, amounting to $400 per month, for a maximum duration of 16 weeks. The first IPREW payment is scheduled for May 27, 2020. All subsequent payments will take place every two (2) weeks. Workers eligible to IPREW are those who: Are working full or part-time in a sector related to essential services during the period; Earn a gross salary of $550 or less per week; Earn yearly employment revenues of at least $5,000 and at most $28,600 for the year 2020; Are aged of at least 15 years at the moment on which they claim benefits from IPREW; Are residents of Québec on December 31, 2019 and are planning to remain residents of Québec all through the 2020 year; Have not received, for a week on which they claim IPREW, benefits from CERB or PATT. IPREW claims can be filed from May 19, 2020 to November 15, 2020 through the My Account with Revenu Québec. Claimants must be registered to direct deposit with Revenu Québec in order to benefit from IPREW. Accelerated Treatment and Payment of Certain Tax Credits The Government of Québec and Revenu Québec have taken several administrative measures to supplement individuals’ financial situations. These measures are further described below. In Canada Buyback of Government of Canada Bonds The Bank of Canada has announced that it is expanding the scope of its Government of Canada bond buyback program to add liquidity to the market. Mortgage Default Management Tools The Canada Mortgage and Housing Corporation (CMHC) and other mortgage insurers have ways to assist homeowners experiencing financial difficulty. Among these are payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements. Canada Emergency Response Benefit (New) The Canada Emergency Response Benefit (CERB) announced on March 25, 2020, and sanctioned by Bill C-13, replaces the Emergency Care Benefit and the Emergency Support Benefit previously announced. The CERB is a taxable benefit of $2,000 per month for a maximum period of 4 months. The CERB was put in place in order to provide financial aid that is faster than the normal Employment Insurance program would be under the circumstances. It is therefore advised that workers eligible for both the CERB and Employment Insurance first file a CERB claim, even though the CERB is limited to a 4-month duration, because CERB claims will be processed faster than Employment Insurance claims. Bill C-13 provides that workers must meet the following criteria to be eligible for the CERB: Whether employed or self-employed, they have ceased working for reasons related to COVID-19 for at least 14 consecutive days within the four-week period in respect of which they are applying for the payment; and They are not receiving, in respect of the consecutive days on which they have ceased working: subject to the regulations, income from employment or self-employment, benefits, as defined in subsection 2(1) of the Employment Insurance Act, allowances, money or other benefits paid to the worker under a provincial plan because of pregnancy or in respect of the care by the worker of one or more of their newborn children or one or more children placed with them for the purpose of adoption, or any other income that is prescribed by regulation. For CERB purposes, a worker is any person aged 15 or more, who is a resident of Canada and who, for the 2019 calendar year or in the twelve (12) months preceding the date on which the worker files the CERB claim, earned at least $5,000 in income. The income must have come from one or several of the following sources: employment; self-employment; benefits paid under the Employment Insurance Act2; allowances, money or other benefits paid to the person under a provincial plan because of pregnancy or in respect of the care by the person of one or more of their newborn children or one or more children placed with them for the purpose of adoption. On April 15, 2020, the Government of Canada has announced that the CERB eligibility criteria will be broadened in order to: Allow persons to earn up to $1,000 per month during which they receive CERB; Extend CERB to seasonal workers who have exhausted their Employment-Insurance regular benefits and are unable to undertake their regular seasonal work as a result of the COVID-19 outbreak; Extend the CERB to workers who have recently exhausted their Employment-Insurance regular benefits and are unable to find a job or return to work because of COVID-19; Allow artists to receive royalty payments for copyrighted works produced before March 1st, 2020 while collecting CERB. Dividends A taxpayer who receives dividends may be eligible to CERB if the dividends paid are ordinary dividends (in general, ordinary dividends are paid from business revenues on which the Small business deduction applies). How to apply CERB claims are available since April 6, 2020. Payments are planned to start in the ten (10) days following the filing of a claim concerning any period starting and ending between March 15, 2020, and October 2, 2020. To file an application, click here. A single CERB claim must be filed with Service Canada. A reimbursement must be made if you have received CERB twice or if you return to work earlier than scheduled. It is to be noted that certain appeals concerning Employment Insurance and the Canada Pension Plan are suspended. Other measures (Québec and Canada) Many other measures will be put in place, including an increase in the Canada Child Benefit, an increase in the maximum GST credit, the reduction of the minimum withdrawal amount of RRIFs, an extension for reimbursement of student loans (both in Québec and in Canada) as well as several specific credits. Here are some of them: Autorité des Marchés Financiers (AMF): The AMF is granting an additional 45 days for the continuous disclosure filings of reporting issuers that were to be filed before June 1, 2020. For more details, click here. Canada Economic Development for Québec Regions (CEDQR): Starting April 1, CEDQR will defer payments due to CEDQR by its clients for a duration of three (3) months. For more information, click here. Export Development Canada (“EDC”): EDC will facilitate cash flow loans for exporting businesses by offering loan guarantees to their banks on loans of at most $5 million. Also, under certain conditions, EDC will cover losses on expedited goods even if the buyer has not accepted them. The cancellation of the 60-day waiting period for compensation claims was also announced. For more details, click here. Hydro-Québec: Since March 23, Hydro-Québec has suspended the application of management fees on outstanding bills for all clients. For more information, click here. Measures concerning judicial and administrative time limits Amongst the emergency measures announced, the authorities have also put in place measures to ensure the respect of the taxpayers’ rights, both in Québec and in Canada. In Québec Suspension of extinctive prescription in civil matters On March 15, 2020, through Order 2020-4251, the Minister of Justice of Québec and the Chief Justice of Québec suspended extinctive prescription and terms for forfeiture in civil matters until the health emergency declared by the Government of Québec on March 13, 2020, comes to an end. Proceedings in civil matters are also suspended during this period, with the exception of matters deemed urgent, such as injunctions and habeas corpus applications. This measure applies to, but is not limited to, the following: Appeals of assessment before the Court of Québec; Summary appeals before the small claims division of the Court of Québec; Application of review of the Minister’s decision refusing to extend the time limit for filing an objection; Request to extend the deadline to file an appeal or a summary appeal. Extension of various deadlines Several deadlines to exercise a right, provide information, send documents or make an election that would have applied before May 31, have been deferred to June 1, 2020. Failing to meet such a deadline can cause the loss of a right and generate a penalty or interest, depending on the nature of the obligation and the amount of time elapsed since the deadline. The deadline extension will cover, among other things, the following: Filing of an income tax return of a corporation; Election of a choice under legal or regulatory fiscal rules, such as a rollover; Claim of a tax credit; Claim of fuel tax reimbursement; Response to a request of information from Revenu Québec; Mandatory or preemptive disclosure with regard to aggressive tax planning; Claim of Québec Education Savings Incentive. Extension of time to file an objection to a notice of assessment For a notice of assessment subjected to a time limit for filing an objection ending between March 15 and June 29, 2020, the time limit is extended to June 30, 2020. However, notices of objection should still be filed within the required time limit (i.e., 90 days from the issuance of the notice of reassessment) provided for in section 93.1.1. of the Tax Administration Act, when possible. This is a mandatory deadline that cannot be amended. Therefore, unless otherwise indicated, a notice of objection filed after the 90-day period provided for in section 93.1.1. of the Tax Administration Act, should also include an application for an extension of time to file said notice of objection. Accelerated treatment and payment of certain tax credits For businesses: On March 27, 2020, the Government of Québec announced the advance payment of tax credits to businesses in order to inject cash in businesses as quickly as possible. This measure will allow for the advance payment of more than $600 million to businesses. For individuals: Revenu Québec has accelerated processing of income tax returns granting a payment by Revenu Québec. Since February 24, 2020, almost $800 million has been paid in advance to individuals having already filed their income tax return. The 4-month extension of the renewal of the tax credit for Home-Support Services for Seniors as well as the deferral of the renewal of the Shelter Allowance Program to December 1, 2020, are improving upon the socio-fiscal measures already in place in Québec. Suspension of audits and debt collection Revenu Québec has suspended its audit activities, except for situations presenting a risk of fraud. No contact with a taxpayer will be initiated by Revenu Québec unless it is necessary for processing a payment to the taxpayer. Revenu Québec has suspended its debt collection activities and will be flexible in the application of payment agreements regarding a fiscal debt. In Canada Suspension of audits (New) The Canada Revenue Agency has announced that no communications aiming to audit SMBs regarding the GST/HST or income tax will occur. Also, no request for information concerning an ongoing audit will be sent to taxpayers. Ongoing audits will stop and no new assessments will be made. If you have received a communication from the Canada Revenue Agency containing response dates or deadlines to transmit a document, no action is required from you or your representative for the time being. Objections and appeals (New) Objections regarding the right to a benefit or a tax credit, such as the Investment Tax Credit (SR&ED), have been deemed to be essential services. No delay should affect processing of such objections. Objections concerning any other tax matter regarding individuals or businesses are suspended. On March 28, 2020, the Canada Revenue Agency announced that the deadline for any objection to a notice of assessment for which the deadline to file a notice of objection is after March 28, 2020, is deferred to June 30, 2020. However, notices of objection should still be filed within the required time limit (i.e., 90 days from the issuance of the notice of reassessment) provided for in section 165 of the Income Tax Act, when possible. This is a mandatory time limit that cannot be amended. Therefore, unless otherwise indicated, a notice of objection filed after the 90-day period provided for in section 165 of the Income Tax Act, should also include an application for an extension of the time to file said notice of objection. Suspension of debt collection (New) All debt collection activities on new amounts owing to the Canada Revenue Agency are now suspended. Existing debts that are already the subject of a collection measure will be re-evaluated on a case-by-case basis. Any taxpayer that cannot, before the payment deadline and for circumstances beyond its control, fulfill its obligations towards the Canada Revenue Agency, can file a Request for Taxpayer Relief in order to cancel interest or penalties that would be otherwise applicable. Administrative tax measures Administrative income tax actions required of a taxpayer by the Canada Revenue Agency that are due after March 18, 2020, can be deferred to June 1, 2020. Such actions include filing of an income tax return, elections and requests for information. Payments of source deductions and any related activities are expressly excluded from such deferrals. Suspension of Tax Court of Canada delays Appeals before the Tax Court of Canada are postponed due to the closing of the Tax Court until further notice. Conference calls scheduled between March 16 and May 29, 2020, are cancelled. The Tax Court’s calendar will be reassessed on May 20, 2020. However, notices of appeal should still be filed within the deadline provided for in section 169 of the Income Tax Act, when possible. The period ranging from March 16 to the 60th day after the eventual reopening of the Court and its offices will be excluded from the computation of time under: Tax Court of Canada Rules (General Procedure); all other Rules made under the Tax Court of Canada Act governing the conduct of matters that, pursuant to section 12 of the Tax Court of Canada Act, are under the Tax Court of Canada’s jurisdiction; or an Order or Direction of the Tax Court of Canada. The Tax Court of Canada will process any applications of extensions of time to file Notices of Appeal filed during the period that the Court is closed and for 60 days thereafter as including an application for an extension of time to appeal brought on the exceptional grounds that the applicant was prevented by the crisis caused by the COVID-19 and the Court closure from filing within the normal statutory deadlines. Appeals to the Minister regarding the Canada Pension Plan and Employment Insurance Taxpayers who wish to file an appeal of the Minister’s decision regarding the Canada Pension Plan or Employment Insurance may do so by filing a request through My Account. As of now, the Canada Pension Plan and Employment Insurance appeals programs are only following up on cases in which benefits are suspended. All other appeals will pick back up when all services are back to normal. Lavery’s team is available to answer any question you may have regarding the announced emergency measures as well as any related aspects. The information and commentaries contained in the present document do not constitute a legal opinion. Their sole purpose is to allow readers, who bear all responsibility, to use them for their own ends. The information and commentaries contained in this document are limited to the measures announced or made public by the Government of Québec and the Government of Canada on or before April 20, 2020. Normally, to be eligible for the small business deduction, a corporation must be a Canadian-controlled private corporation and its taxable capital (including that of its group of related corporations) must not exceed $15 million. Subsections 22(1), 23(1), 152.04(1) and 152.05(1) of the Employment Insurance Act.
COVID-19: How to adapt your current tax planning?
The spread of COVID-19 is having a considerable negative effect on the global economy. Several tax planning strategies adapted to the current situation can be considered in order to mitigate the impact. Tax planning for individuals helps to (i) reduce the taxes payable upon death, (ii) encourage intergenerational business transfers, and (iii) maximize the use of the capital gains deduction, through a trust or otherwise. For businesses in the current economic crisis, creativity and strategic vision are needed. In this context, certain tax plans will allow businesses to (i) maximize liquidity, (ii) reduce a corporate group’s taxes payable in the short term, (iii) optimize the use of losses, and (iv) bring about major tax savings in the long term. Here are a few examples of tax plans that are particularly appropriate for the current situation: Employee stock option plans Reviewing strike prices Strategies for using the capital dividend account Strategies for using losses within a corporate group, including: Intragroup management fees Loans between corporations Amalgamation or liquidation of business corporations Deferral of taxes on imports Recovering the GST/QST on bad debts Strategies to increase the fiscal cost of certain corporate assets and shares Estate freeze in order to lower taxes upon death Estate thawing and refreezing Applicable to a previous freeze whose value exceeds the current value Planning with regard to the rule of the average cost of identical properties Income splitting Leaving Canada Dismantling or creating legal entities to facilitate tax planning These plans are particularly effective in a context of economic downturn and a decrease in the fair market value of investments and assets. It is therefore important to act quickly. Our taxation team is available to answer all of your questions about establishing a tax plan to suit your needs.