Thank you to David Gregory, CPA, of Gregory, Yick & Associates for this insightful article. (Original article – March 24th. Updated April 8th)
The Global fight against the Coronavirus has created a sudden and severe economic shock which is only beginning to make its way through the economy. There will be more economic impacts to follow.
Being older and as a business advisor throughout my career, I have been through many of these downturns and know that quick and decisive action is necessary. Those that are slow to react will find themselves in the most trouble and will fail to adapt to the new economic opportunities as they unfold.
Although there is going to be a period of downturn, when the world gets through this there is going to be one big party and a surge of economic growth no different than what was seen after the ends of the various World Wars. The only difference being internationally the world has been fighting a common enemy, the virus, rather than fighting each other, so anticipate a bigger party with hopefully a more unified World.
In the short term you need to prepare for the survival of your business. Cash flow is going to be critical at this time and you need to take the necessary actions to protect your cash flow. In the mid-term you should make the changes necessary to adapt to the downturn and prepare for the upturn in the economy. Now will be the time to complete those business projects you have been putting off.
As of April 8th 2020, we have seen a large focus on helping to keep your employee team in place. For those eligible for the Emergency Wage Subsidy (75%), consideration should be given whether you would be in a position to provide your employees $847 per week of compensation and then be reimbursed by the Government between 75% to 100% of that amount depending on your circumstances. You as an employer are better off through employee retention and Government subsidy and your staff is better off than the $500 per week they would otherwise have received. Each situation is different and needs to be reviewed; review with your advisor
The big changes the week of April 8th are:
- Decreasing revenue reduction requirement to 15% for the month of March for Wage Subsidy qualification
- Ability to use average of January and February 2020 as the comparable period for the Wage Subsidy qualification
- Accrual or cash basis for revenue calculation can be used. This would be applicable if your cash collection slowed significantly, it may still allow you to qualify.
- Applications for the $40,000 loan can start being received tomorrow.
- Employers portion of CPP and EI to be refunded
- Enforcement rules – an organization will need to designate a responsible person. If an organization is determined to be ineligible for any of the programs, in addition to the requirement to fully repay any amounts, there will also be a penalty of 225% and up to 5 years in prison.
- Here is is a listing of things to do to help protect your business and the employees that rely on you and your business.
For You and Your Business
- Stop making the various Deferred Federal and Provincial Tax amounts including:
- Personal and corporate income tax installments and taxes owing payments – the new Government initiative has deferred all payments without interest until after August 31st.
- Provincial taxes – PST, Employer Health Tax, Municipal and Regional Tax. These payment of taxes and filing or returns has been deferred until September 30th.
- GST, HST and Duties – these payments have been deferred until June 30th as follows:
- For GST/HST
- Monthly Filers – can defer amounts needing to be remitted for their February, March and April 2020 reporting periods
- Quarterly Filers – can defer amounts needing to be remitted for their January 1 to March 31, 2020 reporting period
- Annual Filers – can defer amounts needing to be remitted or instalments which would be due in March, April, May 2020
- For Duties – can defer amounts which would be due March, April and May
- For GST/HST
- Take Advantage of the Wages Subsidies
You will be able to qualify for one of two wages and the subsidy you qualify for may vary by month. To prepare for this make sure you are registered using the CRA MyAccount Service and be sure to register for Direct Deposit.
Please note there will be severe consequences to those committing fraud or taking advantage of or gaming the situation including failing to flow the amounts out to employees. Each organization is going to be required to designate a responsible individual. In the event the organization is found to be receiving funds that it was not entitled to, penalties of 225% will be payable in addition to the repayment of the of the funds received. The responsible individual would also be subject to up to 5 years in prison.The wage subsidies are as follows:
- Emergency Wage Subsidy
Eligible companies and not-for-profit are those who have seen revenues decrease at least 30% due to Covid 19 compared to the same month last year for March a 15% decline, April and May a 30% decline.
Have the option to use the average of January and February 2020 sales rather than the comparable month in the prior year. If your collections on sales have decreased significantly, you can calculate the revenue test using the cash basis of accounting which may allow you to meet the thresholds. You will need to reapply each month. Subsidy will be up to 75% on the 1st $58,700 of annual earnings which corresponds to up to $847 per week of subsidy. This has been back dated to March 15th and is available for up to 3 months. When making the application you will be required to attest you are doing everything possible to pay the other 25% but the system will be flexible. Applications will be made online within the next 3 to 6 weeks once the portal has been developed. Funding will be available in approximately 6 weeks with all businesses encouraged to register now to get onto Direct Deposit to assist with quicker funding. Special rules apply for employees the company does not deal with at arm’s length. This is not available for employees who are on the Emergency Response Benefit (described later below.) There will be severe consequences to those committing fraud or taking advantage of or gaming the situation including failing to flow the amounts out to employees. The current details can be found here. Further guidance is expected in the next couple of days.
OR if you do not qualify for the Emergency Wage Subsidy you likely will qualify for the Temporary Wage Subsidy
- Temporary Wage Subsidy
This is directly taken off of your payroll remittance for the next 3 months and is equal up to 10% of remuneration to employees this has been back dated to March 15th (maximum of $1,375 per employee and $25,000 per employer) details of how to calculate can be found here. If you do qualify for the 75% Wage Subsidy you will still take the 10% Wage Subsidy first off of your payroll remittance (income tax withheld, not CPP or EI), your 75% wage subsidy payment from the Government will be reduced by the 10% not remitted with the payroll remittance.
- Emergency Wage Subsidy
- Contact your Financial Institution for the following:
- Canada Emergency Business Account – you need to contact your financial institution to get a Government sponsored loan of up to $40,000 interest free loan for the 1st year available to small businesses and not-for-profits. Eligible organizations are those that paid between $50,000 and $1 million in total payroll for 2019. If the loan is repaid prior to December 31, 2022 then 25% of loan amount will be forgiven (up to $10,000). Applications begin April 9th.
- Defer business term loan payments – ask them for a deferral of payments on your business term loans for as long as they will allow (please note the banks are going to be overwhelmed by inquiries, if you cannot get through to them you may want to consider causing the loan payments to not go through)
- Defer personal mortgage payments for up to 6 months – request the 6 months of deferral on your personal mortgage (again the banks are going to be overwhelmed with requests, you may need to force the situation. Consider not waiting for their permission if they are not getting back to you.)
- Apply for an increase to your Line of Credit to give you extra working capital
- Discuss with your banker other deferral options available for other loans and credit cards, or increasing credit limits
- Apply for BDC Line of Credit – increase your available working capital by applying for additional Government initiative line of credit financing through BDC. Here is the link Make sure to indicate that the additional loan is for the impacts of COVID-19.
- EI Employee Work Sharing Program
Talk to your employees to see if they would be willing to go to reduced hours using a work sharing program which is topped up by EI. Here is the link.
- Consider Emergency Response Benefit
Please note if you or your employees are receiving the Emergency Response Benefit, payments made during that period are not eligible for the 75% Emergency Wage Subsidy discussed above. The Emergency response benefit is a $2,000 per month benefit for up to 4 months and replaces the previously announced Emergency Care Benefit and EI Sickness Benefit. This is available for you and your employees if you have a loss of income due to the virus outbreak. It is available to anyone with income over 15 years of age with income over $5,000 in the last 12 months. Target release of funds is April 6th. (This amount is effectively available to everyone experiencing a loss of income and even if it is later determined you are not to be eligible the amount is repayable without interest. Unless you feel you will not be impacted or are already on EI, you and your employees should apply and figure out later if any portion is repayable. You need the short term cash flow.) To facilitate quick access, registration with CRA MyAccount service is recommended including registering for Direct Deposit.
Applications begin April 6th but to avoid overloading the system, applications will be staggered as follows April 6th for those with birthdates in January to March, April 7th for birthdates in April to June, April 8th for those with birthdates in July to September and April 9th for those with birthdates in October to December. Benefits are expected to be received within 3 to 5 days from the date of application. Details of this program can be found here.
- Review your Credit to Customers
Many customers will not be able to pay for your services. Make sure to grant credit to only those that are credit worthy and take upfront payment or deposits as much as possible.
- Tax Refunds
If you are expecting personal or corporate tax refunds, get the returns filed to receive the refunds.
- Commercial Rent Payments
If you are renting premises you need to contact your Landlord and make arrangements for deferral of rent payments. Currently there is no requirement for them to do so but they have the ability to defer their mortgage payments and there will be a 50% reduction of a portion of the property tax so they would have the ability to facilitate this. You may want to suggest to them that if they force your business to fail, there is no one waiting to rent your space due to the current economic crisis. You and your Landlord have a mutual benefit to work together to have your business survive. The Landlord will tell you there is nothing they can do, but there definitely is something they can do and need to do to protect their interests as well.
- BC Hydro Payments
If you are making payments directly to BC Hydro, contact them and make arrangements to defer the payments. You can do so without penalty. Here is the link to details. There is also a grant available offered by BC Hydro, see link.
- ICBC Payments
if you are making monthly payments, you will be eligible to defer payments for 90 days without penalty. Here is the link to details
Also, ensure you check out the various financial NRC/IRAP Challenge Programs specifically designed for companies who can help tackle the COVID-19 situation.
The Pandemic Response Challenge Program: National Research Council of Canada
The COVID-19 Challenges Procurement Program: NRC Industrial Research Assistance Program and Innovative Solutions Canada
* Added by SFU VentureLabs
For Your Employees
- Defer personal mortgage payments for 6 months – encourage them to contact their banker to defer their mortgage payments for up to 6 months. Also suggest they discuss other debt deferral options with their banker for other items such as credit card payments.
- EI Program – If the employees are laid off, they are currently eligible for the regular EI payments (changes are anticipated to this) Here is the https://www.canada.ca/en/services/benefits/ei/ei-regular-benefit/apply.html
- Emergency Response Benefit – see discussion above
- BC Hydro and ICBC Payments – your employees will be eligible as well for the deferrals listed above. Details can be found here https://www.icbc.com/about-icbc/contact-us/Pages/covid-19.aspxhttps://www.bchydro.com/news/press_centre/news_releases/2020/bill-relief-covid-19.html
- Apply for the BC Emergency Worker Benefit – this is a onetime $1,000 payment – details can be found here https://www2.gov.bc.ca/gov/content/employment-business/covid-19-financial-supports
Please stay safe, focus on your health and family because at the end of the day that is what matters.
David Gregory, CPA, CA
Gregory,Yick & Associates
#402-130 Brew Street, Port Moody, BC, V3H 0E3