The government of Canada has provided small businesses interest free loans of up to $60,000 through their financial institutions. 33% of the loan is forgivable (25% of the original $40,000 loan and 50% of the additional $20,000 loan) if the non-forgivable portion of the entire loan is repaid by December 31, 2022.

Who is eligible for CEBA loan?

Applicants for the CEBA loan are eligible for the loan under two streams – payroll stream or the non-deferrable expenses stream.  Applicants have until March 31, 2021 to apply for the $60,000 loan or the additional $20,000 expansion. All applicants must have a business number registered on or before March 31, 2020 and must have a business chequing account.

1. Payroll stream

The applicant must have payroll in the 2019 Calendar year between $20,000 and $1,500,000.

2. Non-deferrable expenses stream

Applicants must have eligible non-deferrable expenses between $40,000 and $1,500,000. Eligible non-deferrable expenses include rent, property tax, utilities and insurance.

Additionally, the applicant must file an income tax return for the 2019 year end, if the 2019 return has not yet become due, then the 2018 return must have been filed.

Lastly, if the applicant has received benefits from other government relief programs such as CEWS and CECRA, this will reduce the amount of eligible expenses under the CEBA application.

Please note, under the non-deferrable expenses stream, the expenses will be subject to verification and audit by the Government of Canada.

How to Apply for CEBA loan?

1. Payroll stream

Applicants under the payroll stream can contact their financial institutions and inform them that they want to apply for a CEBA loan, the government of Canada will assess the application and inform the financial institution of approval or decline of the loan.

2. Non-deferrable expense stream

• Applicants must first complete the online pre-screen tool.
• If the application is accepted using the screening tool contact then they must contact a financial institution and ask them to initiate the CEBA loan process.
• The financial institutions will direct the applicant to the CEBA website where they will be asked to provide documentation to support a list of their non-deferrable expenses.

Tax implications

The CRA assumes that the non-forgivable portion of the loan will be repaid before the deadline. As such in the year that the loan is received the forgivable portion of the loan is considered a government grant and is included in taxable income.

In the event that the loan is not repaid before the December 31, 2022 deadline, the forgivable portion of the loan which was previously included in income will be deducted from taxable income. Additionally, the loan will convert into a 5-year loan, starting January 1^st, 2023 interest will be at rate of 5% per annum to be repaid monthly, the loan must be repaid in full by December 31, 2025.

We would recommend you to seek help from a professional who can guide you through the technicalities in the entire CEBA loan process.