Corporate tax returns: what to do with federal assistance received in 2020?

Federal grants for COVID-19 pandemic must be included in company tax return

Contractors had access to several federal government programs in 2020 to help them through the COVID-19 pandemic.

The amounts received will now have to be taken into account when the time comes to file the company’s income tax return.

How do you find your way around? Here are the answers from the Canada Revenue Agency (CRA).

1. Do I have to include amounts received from various programs on my income tax return?

The programs and subsidies offered by the federal government under COVID-19 are subject to various conditions regarding the taxation of income. Here are the broad outlines for the main CRA programs.

Program name: Canadian Emergency Commercial Rental Assistance (CECRA) for small businesses

How do I declare my income? The owner of the commercial property must include the forgivable loan on his or her income tax return. The loan itself is not taxable. However, any portion of the loan that can be written off is taxable in the year the loan is received.

Program name: Canadian Emergency Wage Subsidy (CESS)

How do I declare my income? The employer must include this subsidy on its income tax return. However, the eligible remuneration paid to the employee is a deductible expense for the employer.

Program name: Canada Emergency Rent Grant (CERG)

How do I declare my income? The company must include this subsidy on its income tax return.

Program name: Temporary 10% wage subsidy for employers

How do I declare my income? The employer must include this subsidy on its income tax return. If not already done, the employer should complete the Temporary 10% Wage Subsidy for Employers self-identification form and send it to CRA.

2. What to do with money received from provincial programs?

Provincial and territorial governments have their own corporate income tax legislation, which theCRA administers on their behalf, except for Quebec andAlberta.

Consulting provincial authorities can help determine the federal tax treatment of amounts received from provincial programs. However, federal tax and the appropriate treatment of amounts received are determined by the Income Tax Act (ITA), not by the provincial authority concerned. It is your responsibility to include any assistance you receive, regardless of its source, on your income tax return.

3. How will loans granted under the Canadian Business Emergency Account (CBEU) and the Heavily Affected Sector Credit Program (HACCP) Guarantee be taxed?

For both programs, only the portion of the loan that can be written off is taxable. Therefore, if the amount of the loan that can be written off is $10,000, this amount must be included in the company’s taxable income in the year in which it is received.

Where the portion of the loan eligible for write-off was received for an expense incurred or made before the end of the taxation year following the year in which the loan was received, the borrower may elect not to include the portion of the loan eligible for write-off in computing taxable income, provided that the amount of the related expense is reduced accordingly.

This election must be made in a signed letter attached to the income tax return for the year in which the loan was received or the year in which the expense was incurred or made, whichever is later. For more information, see Interpretation Bulletin IT-273R2.

If the amount of the loan eligible for write-off has been included in the calculation of income and is repaid by the borrower to comply with a legal obligation, a deduction may be allowed for the year in which the repayment was made.

4. Tax filing and payment deadlines for businesses were extended last year. Are the deadlines back to normal this year?

As of March 23, 2021, there is no extension of the corporate income tax filing or payment deadline.

You must file your corporation’s tax return within six months of the end of your taxation year. A corporation’s taxation year is its fiscal year.

5. What are the tax implications for companies that are in the red in 2020 or have experienced a major drop in revenues? Will they be able to carry forward these losses to reduce future liabilities?

Companies that record a net loss during the year may be able to carry it forward to other years. For more information on this subject, see Carrying forward and carrying back.

6. Are COVID-19 expenses eligible for certain tax deductions?

Your company can deduct the purchase of hand sanitizers, masks and similar products from its current expenses.

Other expenses, such as the cost of improving the ventilation system, must be amortized.

An employee, on the other hand, may be able to claim certain home office expenses (workspace expenses at home, office supplies and certain telephone expenses). These deductions can be claimed on the personal income tax return for the 2020 tax year. Deductions reduce the amount of income on which tax is paid, so they reduce overall income tax.

Employees can choose between two methods to claim home office expenses.

The new temporary fixed-rate method simplifies the application process. It can be used if the employee worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020 due to the COVID-19 pandemic. Employees can claim $2 for each day they worked from home during this period, plus $2 for each additional day they worked from home in 2020 due to the COVID-19 pandemic, up to a maximum of $400. That’s the equivalent of 200 working days per person.

The detailed method can also be used to claim deductions for home office expenses incurred while working from home. The employee is entitled to make this claim only if he or she worked from home and meets all these criteria:

he worked from home in 2020 because of the COVID-19 pandemic, or his employer asked him to work from home;
worked from home more than 50% of the time for a period of at least four consecutive weeks in 2020;
he has obtained a T2200S or T2200 form completed and signed by his employer;
the expenses are directly related to his work during the period.

7. Are there any other important things entrepreneurs should know when filing their tax returns for this extraordinary year that was 2020?

For the 2020 tax year, four new codes have been added to the T4 slip to help the CRA validate payments made using the Canada Emergency Benefit (CEP), SSUC and Canada Student Emergency Benefit (CSEB) introduced as a result of COVID-19. These new information codes are to be used when employers are required to report employment income and retroactive payments in the following periods: