CEBA REPAYMENT DEADLINE EXTENDED
On January 12, 2022, the Department of Finance issued a News Release announcing that the repayment deadline for Canada Emergency Business Account (CEBA) loans to qualify for partial loan forgiveness will be extended from December 31, 2022 to December 31, 2023 for all eligible borrowers in good standing. Loans not repaid by the deadline will convert to two year loans with a 5% interest rate commencing on January 1, 2024 and will be fully due by December 31, 2025.
The repayment deadline to qualify for partial forgiveness for CEBA-equivalent lending through the Regional Relief and Recovery Fund will also be extended to December 31, 2023
ADDITIONAL $20,000 AMOUNT
On December 4, 2020, applications opened for the additional $20,000 CEBA loan. The CEBA website and FAQ were also updated to provide additional information.
Eligibility and process
New applicants can apply for the full $60,000 CEBA loan provided they meet the previous eligibility criteria, apply on time and sign the associated loan agreement and attestation.
Applicants who previously received a CEBA loan (up to $40,000), may apply for the $20,000 expansion.
Attestation and amended agreement
Business owners must attest that COVID-19 has negatively impacted the business and that it specifically:
• is facing ongoing financial hardship (including, for example, a continued decline in revenue or cash reserves, or an increase in operating costs);
• intends to continue to operate; and
• has made all reasonable efforts to reduce its costs and to otherwise adapt.
An amended agreement which certifies that all expenditures under the program are “eligible non-deferrable expenses” is required to be signed. Some commentators have noted that some earlier agreements may not have had such a stipulation and that this provision could effectively change the original agreement. Therefore, signing the amended agreement may put certain applicants offside
Repayment terms: The following terms apply to all CEBA loans (original loan and expansion loan):
Interest:
• 0% per annum interest until December 31, 2022; and
• 5% per annum interest starting on January 1, 2023, with the interest payment frequency determined by the financial institution.
Repayments & Maturity:
• no principal repayment required before December 31, 2022; and
• if the loan remains outstanding after December 31, 2022, only interest payments required until full principal is due on December 31, 2025.
Debt forgiveness
If the outstanding principal, other than the amount of potential debt forgiveness, is repaid by December 31, 2022, the remaining principal amount will be forgiven, provided that no default under the loan has occurred. If the full non-forgivable portion is not repaid by December 31, 2022, no portion of the debt will be forgiven.
Both the original and additional loans are combined. If the total is up to $40,000, the applicant gets 25% forgiveness as long as they pay back the other 75% on time (by December 31, 2022). If the total is above $40,000, they only get forgiveness if they pay $30,000 plus 50% of the excess (the portion of the loan exceeding $40,000) on time. The remainder will be forgiven. If the applicant already repaid the original $40,000 loan, claimed forgiveness and then borrowed the additional $20,000, the remainder will be forgiven if they have repaid 50% of the loan.
The CEBA website provides a number of examples as well.
TIMING OF TAXATION
In two Technical Interpretations, October 7, 2020 and November 20, 2020 (2020-0862931C6, Sidi Quattara and 2020-0861461E5, Anna Flisfeder), CRA reiterated its position that the forgivable portion of the loan is taxable in the year in which the borrowed amount is received, regardless of whether all conditions have been met to allow forgiveness or not (Paragraph 12(1)(x)).
CRA also reminded that an election could be made to defer income inclusion from the year of receipt to the following year to offset the related expenditure incurred (Subsection 12(2.2)). The election must be submitted by the taxpayer in a letter attached to the tax return filed for the year in which the expenditure was incurred
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