Federal subsidies to cope with the COVID-19 pandemic must be included in the company’s income tax return
Entrepreneurs had access to several federal government programs in 2020 to support them during the COVID-19 pandemic.
When filing an income tax return, a company will now have to consider the amounts it received.
How to find your way around? The following are the answers from the Canada Revenue Agency (CRA):
Am I required to report the amounts received from various programs on my income tax return?
The programs and subsidies provided by the federal government in the context of COVID-19 are subject to various conditions with respect to income taxation. The key aspects of the CRA’s main programs are as follows:
Canada Emergency Commercial Rent Assistance (CECRA) for small businesses: The property owner of the commercial building must include the forgivable loan on his or her income tax return. The loan itself is not taxable. However, any part of the loan that is forgivable is taxable in the year in which the loan is received.
Canada Emergency Wage Subsidy (CEWS): The employer must include this subsidy on his or her income tax return. However, the eligible remuneration paid to the employee is a deductible expense for the employer.
Canada Emergency Rent Subsidy (CERS): The company must include this subsidy on its income tax return.
10% Temporary Wage Subsidy for Employers: The employer must include this subsidy on his or her income tax return. The employer must complete the 10% Temporary Wage Subsidy Self-identification Form for Employers and send it to the CRA if this has not already been done.
What to do with amounts received from provincial programs?
Consultation with provincial authorities can help determine the federal tax treatment of amounts received from provincial programs. However, the federal tax and the appropriate treatment of the amounts received is determined by the Income Tax Act (ITA), not by the provincial authority concerned. It is your responsibility to report the assistance amounts that you received on your income tax return, regardless of their source.
How will the loans granted by the Canada Emergency Business Account (CEBA) and the Highly Affected Sectors Credit Availability Program (HASCAP) Guarantee be taxed?
For these two programs, only the portion of the loan that can be written off is taxable. Therefore, if the amount of the loan that can be written off is $10,000, this amount must be included in the company’s taxable income in the year in which it was received.
- When the portion of the loan that may be written off was received for an outlay or expense made or incurred before the end of the tax year following the year in which the loan was received, the borrower may elect not to include the portion of the loan that may be written off in calculating his or her taxable income, provided that the amount of the related expense is reduced accordingly.
- This choice must be submitted in a signed letter attached to the income tax return for the year in which the loan was received or the year in which the outlay or expense was made or incurred, whichever occurred first. For more information, consult Interpretation Bulletin IT-273R2.
- If the amount of the loan that can be written off has been included in the calculation of the income and is repaid by the borrower to comply with a legal obligation, a deduction may be allowed for the year in which the repayment was made.
The deadlines for business income tax filing and payment of amounts owing were extended last year. Are the deadlines back to normal this year?
As of March 23, 2021, there is no extension for filing a corporate income tax return or for payment of amounts owing.
You must file your corporate income tax return within the six months following the end of your tax year. A company’s tax year is its fiscal period.
What are the tax implications for businesses that are in the red in 2020 or that have experienced a large drop in revenue? Will they be able to carry those losses in order to reduce future amounts owing?
Companies that incur a net loss in the year may be able to carry it to other years to offset it. For more information on this topic, consult the Carryforward and carryback page on the CRA’s website.
Are expenses related to COVID-19 eligible for claiming certain tax deductions?
Products purchased such as hand sanitizers and masks can be claimed as current expenses by your company.
Other expenses, such as the cost of improving the ventilation system, must be amortized.
An employee may be able to claim certain home office expenses (work-space-in-the-home expenses, office supplies, and certain phone expenses). These deductions can be claimed on the employee’s personal income tax return for the 2020 tax year. Deductions reduce the amount of income on which tax is paid, so they reduce overall income tax liability.
An employee has two options for claiming a deduction for home office expenses.
- The new temporary flat rate method simplifies the claim. This method can be used by an employee who worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. The employee may claim $2 for each day he or she worked from home during that period, as well as $2 for any additional days he or she worked from home in 2020 due to the COVID-19 pandemic, for a maximum amount of $400 (200 working days) per individual.
An employee can also use the detailed method to claim home office expenses that he or she had to pay during the period that he or she worked from home. The employee is only allowed to file this claim if he or she worked from home and meets all of the following criteria:
- the employee worked from home in 2020 due to the COVID-19 pandemic or his or her employer required him or her to work from home
- the employee worked more than 50% of the time from home for a period of at least four consecutive weeks in 2020
- the employee has gotten a completed and signed T2200S or T2200 form from his or her employer
- the expenses are directly related to the employee’s work during the period
Are there any other important elements that entrepreneurs should know about as they file their income tax return for this extraordinary year 2020?
For the 2020 tax year, four new codes have been added to the T4 slip in order to assist the CRA in validating payments made as a result of COVID-19 from the Canada Emergency Response Benefit (CERB), the CEWS, and the Canada Emergency Student Benefit (CESB). These new information codes must be used when employers are required to report employment income and retroactive payments in the following periods:
- code 57 for the period from March 15 to May 9
- code 58 for the period from May 10 to July 4
- code 59 for the period from July 5 to August 29
- code 60 for the period from August 30 to September 26
For example, if you are reporting employment income for the period of April 25 to May 8, payable on May 14, use code 58.
For more information about the 2020 federal corporate income tax return, visit www.canada.ca
The information presented on this page may change at any time. Consult the Canada Revenue Agency website for the most up-to-date information.