It’s hard to go a day without thinking about the COVID-19 virus and its impact on our lives. Most governments, including ours, have provided significant financial support to those most affected. In this regard, the Canadian federal government has announced some income tax relief, which are summarized below.
RRIF minimum withdrawals reduced
As some readers are likely aware, if you have a registered retirement income fund (RRIF), you must withdraw at least a minimum amount each year, beginning with the year in which you turn 72. Due to severe drops in the stock markets, a result of the COVID-19 issue, taxpayers with RRIFs may be forced to sell investments at depressed prices to meet the minimum withdrawal amount. For this reason, the government has reduced the withdrawal limit by 25% for the 2020 year.
For example, if you were 74 at the beginning of 2020 (meaning you turn 75 this year), the regular minimum withdrawal amount would be 5.67%. With the 25% reduction, the minimum withdrawal is 4.25% for 2020.
Tax filing dates
Tax return filing dates have been extended. Taxpayers filing past the normal filing-due dates but on or before the extended filing dates will not be assessed late-filing penalties.
For individuals, the April 30, 2020 filing deadline for 2019 returns has been extended to June 1, 2020. For individuals who are self-employed or who have a spouse or common-law partner who is self-employed, the regular June 15, 2020 filing date still applies.
Note: Although the deadline has been extended, many individuals should file earlier. If you are entitled to a refund, or if you are eligible for the GST credit or other refundable credits which require you to have filed last year’s return before they are calculated, you should file right away. You should ensure that you file electronically, since the CRA is not processing paper returns until it reopens.
For trusts with a taxation year ending December 31, 2019, the tax return filing deadline has been extended from March 30, 2020 to May 1, 2020. For trusts that would otherwise have a filing due date (90 days after year-end) in April or May 2020, the deadline is extended to June 1, 2020.
For corporations that would otherwise have a tax return filing due date after March 18 and before June 1, 2020, the deadline is extended to June 1, 2020.
For partnerships whose 2019 T5013 partnership information return was due on March 31, 2020, the deadline is extended to May 1, 2020.
For payers of amounts to non-residents that are subject to Part XIII withholding tax (e.g. on payments of passive income like dividends and rent), the filing date for the 2019 Form NR4 is extended from March 31, 2020 to May 1, 2020.
Income taxes owing
For all taxpayers, income tax balances including instalments that are otherwise due after March 17, 2020 and before September 1, 2020, can be paid until September 1, 2020 without interest or penalties. For individuals, this will include the March 15, 2020 instalment, if they were required to make that instalment on account of their 2020 income taxes.
The extended payment date does not apply to balances owing before March 18, 2020 – for example, it does not apply to instalments payments that were required during 2019 and which you decided to pay sometime in 2020. The extended date does apply to the balance owing on your 2019 income tax return that was otherwise due on April 30, 2020.
Sales taxes and duties
All businesses, including self-employed individuals, have until June 30, 2020 to make GST/HST remittances that are otherwise due from March 27 through the end of May.
Any GST and customs duty payments for imported goods owing for March, April or May can also be paid until June 30, 2020.
Similar relief (no penalties or interest) has been provided by provinces that have separate sales taxes rather than the harmonized HST.
For example, Quebec has extended the filing date to June 30, 2020 for QST returns that are normally required to be filed between March 27, 2020 and June 1, 2020. Payments in respect of those returns can also be made until June 30, 2020.
In British Columbia, PST returns and payments with due dates after March 23, 2020 and before September 30, 2020 will now be due September 30, 2020.
Manitoba extended the April and May filing deadlines for small and medium-sized businesses with monthly remittances of no more than $10,000. Businesses will have up to two additional months to remit retail sales taxes (RST) and the payroll tax. Business with monthly RST remittances of no more than $10,000 per month that would normally be due on April 20 and May 20 will now be due on June 20, 2020. Businesses that file on a quarterly basis that have a due date of April 20, 2020 will now have the due date extended to June 22, 2020.
In Saskatchewan, monthly filers of PST may defer payment of amounts due for February, March and April 2020 reporting periods to July 31, 2020. Quarterly filers may defer payment of amounts due for the January 1, 2020 to March 31, 2020 reporting period to July 31, 2020.
Reduction in remitting withholding tax on salaries and wages (the “10% Wage Subsidy”)
The government introduced a 10% Wage Subsidy under which eligible employers can retain up to 10% of income taxes they withhold on salaries and wages paid to eligible employees during the eligible period of March 18, 2020 through June 19, 2020. In particular, an eligible employer is deemed to have remitted to the Canada Revenue Agency (CRA) an amount of income taxes withheld during the eligible period, equal to the lesser of 1) $25,000, 2) 10% of salaries and wages paid during the period, and 3) $1,375 per employee employed in Canada in the period. Since the employer is deemed to have remitted that amount of income tax withheld, the employer can keep that amount – thus, it effectively works as a wage subsidy.
For the purposes of the 10% Wage Subsidy, an eligible employer includes a Canadian-controlled private corporation (CCPC), generally whose taxable capital is less than $15 million; an individual other than a trust; a registered charity; a partnership all of the members of which are one of the foregoing persons; and most tax-exempt employers.
Canada Emergency Wage Subsidy
The government subsequently introduced a more extensive wage subsidy, which is separate from the 10% Wage Subsidy discussed above. However, any amount claimed under the 10% Wage Subsidy is deducted from this subsidy.
The Canada Emergency Wage Subsidy (“CEWS”) provides a 75% wage subsidy to eligible employers for up to 12 weeks, retroactive to March 15, 2020 and up to June 6, 2020. The category of eligible employers is somewhat broader than that under the 10% Wage Subsidy, since it includes all taxable corporations and not just CCPCs, but not tax-exempt municipalities and wholly-owned municipal corporations. The CEWS is available to most charities, but excluding a public university, college, school, school board, hospital or health authority.
The CEWS is available to eligible employers in respect of three “qualifying periods”, being the periods from March 15 to April 11, April 12 to May 9, and May 10 to June 6, 2020. Generally, if the employer sees a drop in revenues as described below, the maximum subsidy will be 75% of the amount of remuneration paid to each employee per week, up to a maximum benefit of $847 per employee per week. If an employee’s average weekly remuneration from January 1, 2020 through March 15, 2020 (“pre-crisis weekly remuneration”) was greater than that paid during a qualifying period, 75% of that average will apply, but still subject to the $847 maximum per week.
A special rule applies to non-arm’s length employees. The employer can claim the CEWS for such employees only if they were employed prior to March 15, 2020, and the maximum subsidy for the remuneration paid per week in a qualifying period is 75% of the pre-crisis weekly remuneration, again with a maximum benefit of $847 per week (unlike arm’s length employees, the maximum subsidy cannot be based on 75% of the weekly remuneration during the qualifying period).
In addition, the CEWS will give an employer a 100% refund for employer-paid contributions to the Employment Insurance plan, the Canada Pension Plan, the Quebec Pension Plan, and the Quebec Parental Insurance Plan, for contributions for eligible employees for each week throughout which those employees are on leave with pay during a qualifying period.
In order to receive the CEWS for a qualifying period, the employer must file an application before October 2020. The application is available on the CRA website using the My Business Account portal. At time of writing, the application process on the website was expected to be open by late April or early May.
As noted, there are three qualifying periods. For the first qualifying period, the eligible employer will receive the CEWS subsidy, generally if they have a 15% drop in revenues in March 2020 relative to revenues in March 2019. For the other two qualifying periods, they will receive the subsidy if they have a 30% drop in revenues in April or May 2020, respectively, relative to the revenues in April or May 2019, respectively. Alternatively, the employer can elect to measure the drop in revenues relative to the average revenues in January and February of 2020 (an election is not required if the employer was not carrying on business as of March 1, 2019). However, in all cases, once an employer meets the test for one period, it qualifies for the one following period without needing to meet the test again.
The CEWS is not available to an employer in respect of an employee for a qualifying period if the employee is without remuneration for 14 or more consecutive days. The reason for this exclusion is that the employee should be eligible for the “Canadian Emergency Response Benefit”, a $500 per week subsidy (for up to 16 weeks) provided to employees who are laid off or lose their jobs because of COVID-19.
The CEWS is provided under section 125.7 of the Income Tax Act; it is technically deemed to be an overpayment of the employer’s taxes, which the employer can receive as a refund. Normally, a tax refund is provided only after the tax return for the year is filed. However, the CRA has been given the authority to pay out the CEWS anytime in 2020, so employers do not have to wait for payment until next year when their returns are filed.
For employers that are eligible for both the 10% Wage Subsidy and the CEWS for a period, the benefit from the 10% Wage Subsidy reduces the CEWS for that same period. Otherwise, there is no overall limit on the CEWS amount that an eligible employer may claim.