Taxation of the forgiven portion of the CEBA loan in 2020 | Dentons

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As the corporate tax filing deadline for December 31 of the year approaches, businesses that have received Loan loan for emergency business account in Canada in 2020, you should be aware of the tax consequences of the forgiven part of the loan.

CEBA was launched on April 9, 2020 to support businesses during the COVID-19 pandemic. A business can qualify for CEBA loans under the following conditions:

  • If the business has borrowed USD 40,000 or less and business fully repays the outstanding loan (other than the amount available for forgiveness) no later than December 31, 2022, then 25% credit (up to USD 10,000) will be forgiven
  • If the business took more than USD 40,000 up to USD 60,000, and the company fully repays the outstanding loan balance (except for the amount available for forgiveness) no later than December 31, 2022, then one tranche of loan forgiveness until USD 20,000will be provided based on the following mixed rate:
  • 25% Firstly USD 40,000; a plus
  • fifty% for amounts higher USD 40,000 and before USD 60,000

If the entity does not fully repay the outstanding loan balance (other than the amount available for forgiveness), no forgiveness will be granted.

It is important to note that the portion of the loan to be forgiven must be included in the taxpayer’s income in the year the loan is received. in accordance with paragraph 12 (1) (x) Income tax law (“ITA”)unless the taxpayer decides in accordance with subsection 12 (2.2) of the ITA to reduce the amount of costs or expenses that are incurred or incurred by the taxpayer. This was recently confirmed by the CRA in its Technical Interpretation 2020-0861461E5.

Selection under subsection 12 (2.2) is made by means of a signed letter accompanying the applicable tax return, which includes the following: (a) the subsection under which the selection is made; (b) the selected amount; and (c) the amount of assistance and the date it was received. Typically, this decision must be filed no later than the date on which the taxpayer tax return is due for the year the loan was received, or the next year if expenses or expenses are incurred or incurred in the following year.

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