Did you know your business or not-for-profit could be eligible for an additional $20,000 from the Canada Emergency Business Account, even if you already received a government-guaranteed loan through the program?
With 2020 coming to a close, we wanted to make sure our clients were aware of recent changes to the Canada Emergency Business Account (CEBA). Most notable is the news of a 50 percent increase in the one-time loan amount, up from $40,000 to $60,000. Past applicants can apply to receive the extra money.
We provided an extensive breakdown of CEBA in a previous blog, but here’s a brief reminder of the main points.
What is CEBA?
The Canada Emergency Business Account is a source of cash for small businesses and not-for-profits struggling with economic hardship because of the ongoing COVID-19 pandemic.
CEBA loan money must be used to pay for operating costs that cannot be deferred, such as payroll, rent, utilities, insurance, property tax, and regularly scheduled debt service payments. Since CEBA launched in April, some 800,000 eligible businesses across Canada have applied for and received approximately $32 billion in loans.
Funds received through CEBA are considered a term loan at 0% interest, and no payments are required until December 31, 2022.
Take advantage of up to $20,000 in loan forgiveness
CEBA also offers up to $20,000 in loan forgiveness. The balance of the loan is forgiven if two-thirds of the principal is repaid by December 31, 2022. Borrowers who received $40,000 must pay back at least $30,000. Those who receive $60,000 must pay back $40,000.
CEBA loan amount boosted
As we mentioned above, the CEBA program launched with a loan amount of $40,000. In December 2020, that was boosted to $60,000.
Businesses who have already received a $40,000 loan are now eligible to apply for the additional $20,000 expansion, even if they’ve repaid the initial loan. Applications must be submitted via the financial institution where the original CEBA loan was obtained. The deadline to apply for either the full $60,000 loan or the $20,000 expansion is March 31, 2021.
What else has changed?
The increase from $40,000 to $60,000 isn’t all that’s new. In October 2020, CEBA eligibility rules were changed to remove a prior requirement that applicants held an active business chequing/operating account opened on or before March 1, 2020. Eligible businesses can now apply after opening a new business chequing/operating account.
Is CEBA taxable?
The forgivable portion of CEBA is taxable in the year it’s received. If any of the forgivable portion is repaid, for instance because eligibility requirements weren’t met, that amount can be deducted in the year it is repaid.
Whether you receive $40,000 or $60,000 in CEBA loans, discuss any potential tax implications with your financial institution before applying for the full loan or the expansion amount. You should also plan ahead for potential tax payments that could result from CEBA loans received, or other pandemic-related benefits.
Finally, make sure you keep a file of CEBA documents you can easily refer to, just in case your eligibility is questioned by Canada Revenue Agency. This is likely to be a complicated tax season for many Canadians, so preparedness will be particularly important.