Taxation advice for businesses during the COVID-19 crisis

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It goes without saying that many businesses with marketable security investments will have sustained losses due to the recent stock market challenges. At Zeifmans, we’ve been working closely with our clients throughout the COVID-19 crisis to date, ensuring that their business ventures remain profitable during this unprecedented time.

Over the last 60 years, our tax team has amassed an incredible amount of taxation knowledge. And while the world has never before seen a crisis quite like this one, we have stood by clients through prior economic storms, and watched them emerge with strength and resilience. Those experiences have given us unique perspective, enabling us to provide our clients with actionable advice that will stand the test of time.

In today’s blog post, we’re going to be sharing our taxation advice for businesses affected by the COVID-19 crisis.

Losses
Capital losses can be carried back up to three taxation years and applied against capital gains of those years. Therefore, if a business has reported capital gains in any of the last three taxation years, it likely makes sense to trigger the capital losses in order to carryback the loss and recover taxes paid in those earlier years. If you believe an investment will rebound, then all you will need to do is wait out a thirty-day period before buying back the same marketable security.

Business losses can also be carried back up to three taxation years in order to recover taxes of those years and may be applied against all forms of income including capital gains.

Tax deadlines and installments
COVID-19 has caused the federal government to extend certain tax deadlines. Although businesses were granted a reprieve from making tax installments until August 31, 2020, the safe harbor to avoid incurring installment interest charges is to base the installments upon the prior year’s net income. For most businesses, however, their net income for fiscal 2020 will be lower than for fiscal 2019.

All businesses, whether incorporated or unincorporated, are permitted to make installments based on what they expect their net income to be in the current 2020 fiscal year, subject to the fact that if they underpay, they may be subject to installment interest.  All business owners are encouraged to review their current year fiscal results in September 2020 and tailor their remaining tax installments accordingly.

If a taxpayer is unable to file their tax return on time (even with the extensions) because of COVID-19 related challenges, they should file an application to the CRA under the taxpayer relief program to avoid the late-filing penalties. The request for relief would be initiated by completing and submitting form RC4288 with the CRA. Details of the program are contained in the CRA Information Circular IC 07-1R1 or Guide T4060.

One of the instances cited by the CRA for granting such relief is due to events beyond the taxpayer’s control, such as a death or natural disaster. Past relief was granted when Canada faced the SARS crisis, so it is only logical to assume that similar relief will be granted in today’s circumstance.

It is also worth noting that the CRA will not contact any small or medium (SME) businesses to initiate any post-assessment GST/HST or Income Tax Audits for the next four weeks. For the vast majority of businesses, the CRA will temporarily suspend audit interaction with taxpayers and representatives.

Corporate tax installment payment adjustments
If it is clear that a corporation has already made too much in corporate tax installment payments for its current fiscal year based on its projections of what its net income will be, it only makes sense to be proactive. The corporation can request that CRA transfers its excess tax installments to its payroll or HST account to alleviate its cash flow, rather than waiting until after the end of the fiscal year to request a refund of the excess taxes paid after filing its corporate tax return.

Government economic measures
The federal government has recently announced that it will be providing a temporary wage subsidy to eligible employers for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. This measure is restricted to Canadian Controlled Private Corporations (“CCPCs”) eligible for the small business deduction, as well as non-profit organizations and charities. The $25,000 wage subsidy does not have to be shares by associated CCPCs.

The government is also changing the Canada Account so that the Minister of Finance would allow the government to provide additional support to Canadian companies through loans, guarantees, or insurance policies during these challenging times.

Social measures for the banking sector
The Business Credit Availability Program (BCAP) will allow the Business Development Bank of Canada (EDC) to provide more than $10 Billion of additional support, largely targeted at small and medium-sized businesses. Farm Credit Canada will also be increasing the near-term credit available to farmers and the agri-food sector.

By lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, Canada’s large banks will be able to inject $300 Billion of additional lending in to the economy. This measure is effective immediately. Further, the Bank of Canada has extended credit to businesses by cutting the interest rate to 0.75%. This is a proactive measure in light of the negative shocks to Canada’s economy from the COVID-19 situation.

Lean on the experts
The Zeifmans tax team remains fully operational during this time of upheaval, ready to assist our clients in taking advantage of every available opportunity for wealth preservation. It is possible to weather this storm, but to do so will require decisive action, innovating planning, and up-to-date taxation knowledge.

To begin crafting your COVID-19 taxation responsiveness plan, contact our team today.

Suggested supplemental insights:

Zeifmans COVID-19 Resource Centre

Canadian government response to COVID-19 – Business owner impact