Federal support for businesses during the COVID-19 pandemic

May 14, 2020

The spread of COVID-19 has spawned an ever-growing number of government support programs designed to address and mitigate the various economic impacts of the pandemic.

Taken together, the sheer number and scale of these programs are enormous. As of late last month, the estimated cost of these programs was almost $150 billion. Factor in tax deferrals, loan guarantee programs and liquidity support programs, and that cost soars to more than $817 billion.

These numbers are staggering, and understanding all the relevant program details (i.e., qualification criteria, application processes, dollar amounts, timing, etc.), not to mention all the acronyms, can be daunting. What’s more, some program details continue to evolve as the responses of governments evolve.

In the coming weeks, I’ll be writing about aspects of these programs to help clarify what they mean, and how you could apply for them if need be. Given that investors, entrepreneurs, employees, suppliers, governments and communities at large all have significant stakes in the economic health of businesses, I’ll start there.

Wide range of programs for businesses

Small and large businesses alike contribute to the prosperity and diversity of our country by creating jobs, driving innovation and funding taxes that contribute to improving our communities. Over the last few months, the Department of Finance has announced a wide range of federal support programs for a broad spectrum of businesses.

As you can see here, they grouped those programs into seven categories, each based on the intended objective or the specific area of support.

• avoiding layoffs and rehiring employees
• access to credit
• creating new jobs and opportunities for youth
• deferred payments
• support for self-employed individuals
• Indigenous businesses
• supporting financial stability

For the sake of brevity, I’ll touch on six of these programs.

Extension of Work-Sharing Program

According to the Finance website, Work-Sharing (WS) “is an adjustment program designed to help employers and employees avoid layoffs when there is a temporary reduction in the normal level of business activity that is beyond the control of the employer.” The pandemic is exactly that.

In light of COVID, the federal government is extending the maximum duration of the Work-Sharing program from 38 weeks to 76 weeks. There are several criteria for eligible employers and employees, with details and applications found on this page.

In short, eligible owners have to have been in business in Canada year-round for at least two years, and they need to demonstrate “a recent decrease in business activity of approximately 10%”, among other criteria.

Employees, meanwhile, have to be “core employees” (i.e., full or part-timers “required to carry out the everyday functions of normal business activity”) who are eligible to receive Employment Insurance and who have agreed to a reduction of their normal working hours in order to share available work.

This WS extension applies to eligible private businesses, publicly held companies and non-profit organizations

Canada Emergency Wage Subsidy (CEWS)

This benefit – the purpose of which is to help prevent layoffs – covers 75 per cent of salaries for qualifying businesses, and was originally meant to run for the 12-week period from March 15 to June 6. On May 8, though, Prime Minister Trudeau announced that this wage subsidy will be extended even further.

As you can read here, eligible employers for the CEWS are entitled to receive a 100% refund for certain employer contributions to Employment Insurance (EI), Canada Pension Plan (CPP), the Quebec Pension Plan and the Quebec Parental Insurance Plan paid to employees on leave. Eligible businesses can apply for fast and secure direct deposit of CEWS payments by signing up through this Canada Revenue Agency site.

Temporary Wage Subsidy for Employers

This three-month measure allows eligible employers to reduce the amount of payroll deductions required to be remitted to the Canada Revenue Agency (CRA). It’s important to note that this temporary wage subsidy is separate from CEWS.

The temporary subsidy is equal to 10% of the remuneration you pay from March 18, 2020 to June 19, 2020, up to $1,375 for each eligible employee and to a maximum of $25,000 total per employer.

There are many ways to calculate the subsidy. And as the government website makes a point of saying, the subsidy must be calculated manually, either “by you or whoever is responsible for making your payroll remittances. The CRA will not automatically calculate the allowable subsidy.” That said, three useful case studies on this page help show how you can make your subsidy calculations.

Employers don’t need to apply for this subsidy. Simply continue deducting income tax, CPP contributions and EI premiums from salary, wages, bonuses, or other remuneration paid to your employees, as you currently do. The subsidy will be calculated when you remit these amounts to the CRA. Once you’ve calculated your subsidy, you can reduce your current payroll remittance of federal, provincial, or territorial income tax that you send to the CRA by the amount of the subsidy.

Business Credit Availability Program (BCAP)

This program offers loan support through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC). BDC and EDC are working with private sector lenders to coordinate credit solutions for individual businesses, including in sectors such as oil and gas, air transportation, exports and tourism.

BCAP – designed to support access to financing for Canadian businesses in all sectors and regions – comprises two main programs, as you can see here:

1) Canada Emergency Business Account (CEBA)

This emergency relief provides interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced. To qualify, these organizations need to demonstrate that they’ve paid between $20,000 to $1.5 million in total payroll in 2019.

Business owners can apply for support from the CEBA through their banks and credit unions.

2) Loan Guarantee for Small and Medium-Sized Enterprises

Export Development Canada (EDC) is working with financial institutions to guarantee 80% of new operating credit and cash flow term loans of up to $6.25 million to small and medium-sized enterprises (SMEs). This financing support is to be used for operational expenses, and is available to both exporting and non-exporting companies.

As well, BDC is working with financial institutions to co-lend term loans to SMEs for their operational cash flow requirements, which could include interest payments on existing debt. The program is designed in three segments to target support to different business sizes.

• Loans of up to $312,500 to businesses with revenues of less than $1 million.
• Up to $3.125 million for businesses with revenues between $1 million and $50 million.
• Up to $6.25 million for businesses with revenues in excess of $50 million.

Loans would be interest-only for the first 12 months, with a 10-year repayment period.

For additional information on – and to apply for – any of the BCAP programs, contact your primary lender where you have a pre-existing relationship.

Deferral of Income Tax and GST/HST Payments

Businesses – including self-employed individuals – can defer until the end of June 2020, any payments or remittances that become owing on or after March 27 2020 and before June of this same year. That means no interest will apply if your payments or remittances are made by the end of this coming June.

You can learn more here about these deferrals.

Want to discuss these?

My colleagues and I at T.E. Wealth are tracking these and other support programs closely. Please get in touch if you would like to talk about how they may apply to you or a family member.

Scott McKenzie, CFA, CFP, CIM
Senior Vice-President & Financial Consultant
T.E. Wealth