COVID-19: Canadian federal tax changes and announcements
April 2, 2020
The COVID-19 pandemic has prompted tax-related measures and announcements from the Government of Canada, the Canada Revenue Agency (CRA) and the Tax Court of Canada (Tax Court) on an unprecedented scale, including economic relief for businesses and individuals, deferrals of due dates for certain upcoming tax filing and payment obligations, and the temporary suspension of certain audit and collection activities by the CRA and sittings by the Tax Court.
In this bulletin we discuss key tax-related measures introduced in Canada’s COVID-19 Economic Response Plan, relating to: tax-related economic relief; tax filing and payment relief; and CRA audit and related practice.
What you need to know
- Tax-related economic relief measures stemming from Canada’s COVID-19 Economic Response Plan of March 18, 2020 (Economic Response Plan) include wage subsidies for businesses and various relief measures for individuals, particularly those experiencing hardship due to disruptions in their workplace. Many of these measures were passed into law on March 25, 2020 and details of an expanded wage subsidy were announced on April 1, 2020.
- Highlights of the deferral measures for tax administrative actions stemming from the Economic Response Plan and adopted by the CRA, as of today, include the following:
- Tax returns: The filing date for: (i) individual (other than trust) and corporate income tax returns, otherwise due between March 18 and May 31, 2020, has been extended until June 1, 2020; (ii) the 2019 partnership and non-resident payment information returns has been extended to May 1, 2020; and (iii) trust returns for those trusts with December 31 taxation year-ends has been extended to May 1, 2020 and trust returns that otherwise have a filing due date in April or May has been extended to June 1, 2020;
- Tax payments: Taxpayers may defer the payment or remittance of the following amounts, until the dates specified, without interest or penalties: (i) income tax balances or instalments otherwise payable between March 18, 2020 and August 31, 2020 may be deferred until September 1, 2020; and (ii) GST/HST and customs duties otherwise due in March, April or May, may be deferred until June 30, 2020;
- Audits: The CRA will not initiate contact with taxpayers for audits (with certain exceptions), including no new audits being launched, no audits being finalized, and no reassessments being issued;
- Objections: Notices of objections with a due date on or after March 18, 2020 will be extended until June 30, 2020; and
- Collections: The CRA has suspended collection activities on new tax debts until further notice and has indicated that flexible payment arrangements will be available, on a case-by-case basis, for amounts becoming due.
- The Tax Court has suspended all sittings and judicial activities until May 1, 2020 and is expected to revisit this date by April 14, 2020 to determine if these measures will be extended.
Economic response plan
On March 18, 2020, the Government of Canada released the Economic Response Plan with economic measures to help stabilize the economy and provide relief to Canadians affected by the COVID-19 pandemic. The economic relief measures that required Parliamentary approval were passed into law on March 25, 2020 by Bill C-13 COVID-19 Emergency Response Act (Bill C-13). Details of an expanded wage subsidy were also announced on April 1, 2020. Further, the CRA has adopted the announced procedural relief, as expanded by subsequent announcements, and intends to provide updates to taxpayers through its website.
Our discussion of the key tax-related measures introduced in the Economic Response Plan and subsequent announcements covers:
- tax-related economic relief;
- tax filing relief;
- tax payment relief; and
- CRA audit and related practice.
1. Tax-related economic relief
To support businesses, Bill C-13 includes a Temporary Wage Subsidy (TWS) for remuneration paid to employees, and on April 1, 2020, the Government announced details of an expanded wage subsidy for eligible employers, called the Canada Emergency Wage Subsidy (CEWS). Bill C-13 also includes measures to provide economic relief to individuals who are off work or have reduced hours due to the COVID-19 outbreak in the form of the Canada Emergency Response Benefit (CERB).1 Further, Bill C-13 provides the Government with the ability to enhance EI benefits through interim orders and also includes an increase in both the Goods and Services Tax credit and the Canada Child Benefit.
Relief measures for businesses
Employer wage subsidies
The TWS is provided for three months to eligible employers. The TWS is equal to 10% of remuneration paid during the three-month period between March 18, 2020 and June 19, 2020, up to a maximum of $25,000 per employer (and $1,375 per employee). Eligible businesses will be able to benefit immediately from the TWS by reducing their remittances to the CRA of income tax withheld on their employees’ remuneration. Businesses eligible for the TWS include corporations that are eligible for the small business deduction, individuals (other than trusts), certain partnerships, non-profit organizations and charities.
In addition, on April 1, 2020, the Government announced details of the CEWS (for more on the CEWS, see our analysis here). Pursuant to the April 1, 2020 announcement, the amount of the subsidy for a given employee on eligible remuneration paid between March 15 and June 6, 2020 will be the greater of: (i) 75% of remuneration paid, up to a maximum of $847 per week; and (ii) the amount of remuneration paid up to a maximum of $847 per week or 75% of the employee’s pre-crisis weekly remuneration, whichever is less. The Government will provide more guidance on determining pre-crisis weekly remuneration in the coming days. Employers are also eligible for a subsidy of up to 75% of salaries and wages paid to new employees.
For purposes of the CEWS, eligible remuneration is generally salary, wages and other remuneration for which employers would generally be required to withhold or deduct income tax source deductions. However, eligible remuneration does not include severance pay, or items such as stock option benefits or personal use of a corporate vehicle. For employees that do not deal at arm’s length with their employer, the subsidy amount is limited to the eligible remuneration paid in any period between March 15 and June 6, 2020, up to a maximum benefit of $847 per week or 75% of the employee’s pre-crisis weekly remuneration.
With the CEWS, there is no overall limit on the subsidy amount that an eligible employer may claim. This is a significant difference from the TWS which provides a maximum limit of $25,000 per employer.
The CEWS is available to eligible employers who suffer a drop of at least 30% of their revenue in March, April or May, when compared to the same month in 2019. Eligibility for new employers established after February 2019 will be determined by comparing monthly revenues to a reasonable benchmark. An employer’s revenue for this purpose will be its revenue from its business carried on in Canada earned from arm’s length sources. Further, revenue will be calculated using the employer’s normal accounting method and will not include revenues from extraordinary items and amounts on account of capital. In applying for the CEWS, employers will be required to attest to the decline in revenue. The Government will work with non-profits and charities to ensure that the definition of revenue is appropriate for their specific circumstances.
For the purposes of the CEWS, eligible employers include individuals, taxable corporations, partnerships (consisting of eligible employers), non-profit organizations and registered charities. Public sector bodies, including municipalities and local governments, Crown corporations, public universities, colleges, schools and hospitals, will not be eligible for the CEWS.
The Government stated that eligible employers will be able to access the CEWS by applying through the CRA My Business Account portal as well as a web-based application. However, more details on how to apply for the CEWS will be made available shortly.
The Government expects that employers will do their part by using the subsidy in a manner that supports the health and well-being of their employees. The announcement is clear that employers must make their best effort to top-up employees’ salaries to bring them to pre-crisis levels. In order to maintain the integrity of the program and to ensure that it helps Canadians keep their jobs, employers will be required to repay amounts paid under the CEWS if they do not meet the eligibility requirements and pay their employees accordingly. Penalties may apply in cases of fraudulent claims. In addition, the Government announced that it will include anti‑abuse rules in the CEWS regime to ensure that the subsidy is not inappropriately obtained and to ensure that employees are paid the amounts they are owed. The Government is also considering whether to introduce new offences that will apply to individuals, employers or business administrators who provide false or misleading information to obtain access to the CEWS or who misuse any funds obtained under the program.
For employers that are eligible for both the CEWS and the TWS for a period, any benefit from the TWS for remuneration paid in a specific period will generally reduce the amount available to be claimed under the CEWS for the same period.
An employer will not be eligible to claim the CEWS for remuneration paid to an employee in a week that falls within a 4-week period for which the employee is eligible for the CERB as discussed below. Employers who are not eligible for the CEWS will still be able to provide a leave of absence to employees who will receive up to $2,000 per month under the CERB as discussed below.
The Government states that the wage subsidy received under the TWS or CEWS will be considered to be government assistance that will be required to be included in the employer’s taxable income. Further, assistance received under either wage subsidy will reduce the amount of remuneration expenses eligible for other federal tax credits calculated on the same remuneration.
Relief measures for individuals
Canada Emergency Response Benefit
The CERB provides financial support to workers affected by the COVID-19 outbreak. The CERB is a combination of and replaces the Emergency Care Benefit and the Emergency Support Benefit announced by the Government in the Economic Response Plan on March 18, 2020. The CERB provides a taxable benefit of up to $2,000 a month for up to 16 weeks to a “worker” who meets certain requirements.2 A “worker” is defined in the Canada Emergency Response Benefit Act (which was passed in Bill C-13) as: a person who is at least 15 years old, is resident in Canada, and in 2019 or in the 12-month period preceding their application has a total income of at least $5,000. A worker is eligible for the CERB if they cease working for reasons relating to COVID-19 for at least 14 consecutive days within the 4-week period in which they applied for the CERB and they do not receive any income in respect of these consecutive days.3
The Government has announced that the legislation will allow access to the CERB in the following circumstances:
- workers who need to stop working as a result of COVID-19 and do not have access to paid leave or other income support;
- workers who are sick, quarantined, or taking care of someone who is sick with COVID-19;
- working parents who have to stay at home without pay to care for children who are sick or require additional care due to the closure of schools and daycares;
- workers who are still employed but are not being paid because there is not enough work and their employer has asked them not to go to work; and
- wage earners and self-employed individuals (including contract workers) who are not otherwise eligible for EI.
The Government has indicated that Canadians can apply for the CERB starting in April 2020 and eligible applicants should begin to receive their payments within 10 days of submitting their application. The CERB will then be paid in respect of eligible 4-week periods between March 15, 2020 and October 3, 2020. A worker can apply for the CERB in four-week increments. Applications for the CERB cannot be made after December 2, 2020.
The EI application system has been overwhelmed in the past few weeks with unprecedented volume. As a result, Canadians who have stopped working due to COVID-19 can receive the CERB regardless of whether they are also eligible for EI benefits. However, individuals that are already receiving EI benefits for the relevant period will not be eligible for the CERB.
Expanded EI benefits
Bill C-13 amends the Employment Insurance Act (EI Act) in two main respects. First, it provides that the Minister of Employment and Social Development may, for the purpose of mitigating the effects of COVID-19, make interim orders that add provisions to the EI Act or the regulations that provide for new benefits, adapt provisions of the EI Act or the regulations, or provide that certain provisions of the EI Act or the regulations do not apply in whole or in part. To make interim orders, the consent of the Minister of Finance is required. Second, Bill C-13 has waived the requirement for individuals who are sick, quarantined or directed to self-isolate to provide a medical certificate prior to accessing EI sickness benefits.
The Government has announced in the Economic Response Plan several measures that they will undertake with regards to EI but the amendments to the EI Act provide broad powers to make additional changes. The Government announced that it is extending the EI Work Sharing Program, which provides EI benefits to workers who agree to reduce their working hours due to circumstances beyond their employers’ control. The EI Work Sharing Program extends the eligibility of these agreements to 76 weeks, eases eligibility requirements and improves the efficiency of the application process. Further, it was announced that the Government would waive the one-week waiting period for individuals in quarantine to claim EI sickness benefits.
To provide income support for low and modest-income families, Bill C-13 includes a one-time special payment in the form of a Goods and Services Tax credit. This payment is expected to be made by early May and will double the maximum annual Goods and Services Tax credit for the 2019-20 benefit year.
Canada Child Benefit
To provide additional support for families with children, Bill C-13 provides for an increase in the maximum annual Canada Child Benefit payment amounts, for the 2019-20 benefit year, of $300 per child. This will be received as part of the May payment.
Registered Retirement Income Funds
In recognition of volatile market conditions and their impact on many seniors’ retirement savings, Bill C-13 reduces the required minimum withdrawal from Registered Retirement Income Funds by 25% for 2020. Similar rules will apply to individuals receiving variable benefit payments under a defined contribution Registered Pension Plan.
2. Tax filing relief
The CRA will permit taxpayers to defer administrative tax actions that are due between March 18, 2020 and May 31, 2020 until June 1, 2020, unless otherwise noted. These actions include the filing of returns (such as those for individuals, other than trusts (Form T1) and corporations (Form T2)), forms, elections and designations.4
As of the date of this bulletin, the CRA has identified the following exceptions:
- the filing deadline for 2019 information returns for partnerships (Form T5013) and non-resident payments (Form NR4) has been extended to May 1, 2020;
- the filing deadline for trust returns (Form T3) for trusts with December 31, 2019 taxation year-ends has been extended to May 1, 2020 and for those trust returns that would otherwise have a filing due date in April or May, the deadline has been extended to June 1, 2020;
- the filing deadline for registered charity information returns (Form T3010) due between March 18, 2020 and December 31, 2020 has been extended to December 31, 2020;5 and
- taxpayers should continue to file their GST/HST returns on time; however, the CRA has indicated that it will not impose penalties if these returns are filed late, provided that the returns are filed by June 30, 2020.6
The filing due dates for 2019 income tax returns for self-employment individuals and corporations with December 31 taxation year-ends are not addressed by the deferral measures, and as such, these returns are still required to be filed on June 15 and June 30, 2020, respectively.
Further, to reduce administrative burden and avoid the necessity of in-person meetings, electronic signatures will now be recognized as having met the requirements of the Income Tax Act (Canada) (Tax Act) for the authorization forms T183 and T183CORP, which are the forms that authorize tax preparers to file tax returns.
3. Tax payment relief
The CRA will allow all taxpayers to defer until September 1, 2020 the payment of any income tax balances or instalments under Part I of the Tax Act that become payable on or after March 18, 2020 and before September 2020. During this period no interest or penalties will be imposed on these amounts owing.
To further support businesses, the CRA will permit remittances of net GST/HST amounts, as well as GST/HST instalments, otherwise required in March, April or May, to instead be remitted or paid by June 30, 2020. In addition, the payment deadlines for statements of account for customs duties and GST on imports for March, April or May are deferred to June 30, 2020.
There is currently no deferral relief for the remittance of payroll deductions (other than in connection with the TWS described above),7 non-resident withholding tax under Part XIII of the Tax Act and excise taxes and duties.
4. CRA audit and related practice
On March 27, 2020, the CRA announced (with certain exceptions) that it will not initiate contact with taxpayers for audits. This includes no new audits being launched and no requests for information being made related to existing audits. As well, the CRA announced that no audits will be finalized, no reassessments will be issued and taxpayers can defer responses to information requests until June 1, 2020. At this time, there is no further guidance provided on these new measures and the exceptions that may apply.
We also understand that the CRA has announced that it will cancel any requests for contemporaneous documentation under the transfer pricing rules that were made prior to April 1, 2020 and have a deadline of March 18, 2020 or later. Further, the CRA announced that these requests (which require document production within three months) will then be re-issued at a later date.
Previously, the CRA had announced that interaction with taxpayers would be limited to situations where the legal deadline to reassess a tax return is running out and in cases of high-risk GST/HST refund claims. At this time, it is unclear if the CRA’s position in regards to these limited situations applies, after the relief measure announcements made on March 27, 2020.
At this time, it is unclear if the CRA will apply these relief measures to large corporations. However, in any event, logistical difficulties may interfere with the ability of CRA personnel to conduct audits, and with the ability of large corporate taxpayers to prepare responses – especially documentary productions.
When a taxpayer is uncooperative with a tax audit, the CRA may generally apply to Federal Court for a compliance order. At this time, the Federal Court has effectively suspended operations until April 17, 2020.
Parliament has not extended the statutory deadlines for the CRA to assess tax. In general, CRA may only assess after the limitation period has expired if the taxpayer waives the limitation period, or in cases of fraud or misrepresentation attributable to neglect, carelessness or wilful default.
The CRA has announced the suspension of collection activities on new tax debts until further notice. A further update is expected from the CRA that may provide more information on the application of these measures to large corporations. According to the CRA, flexible payment arrangements will be available for amounts becoming due, while collections staff will address pre-existing situations on a case-by-case basis. Any collection measures that require using the judicial system are effectively unavailable due to suspensions for non-urgent business.
Further, the CRA announced that banks and employers do not need to comply or remit on an existing Requirement to Pay during this time.
Objections and appeals
The CRA announced that the deadline for any objection due March 18, 2020 or later is effectively extended until June 30, 2020. No extension has been announced for filing an appeal to the Tax Court.
In any event, taxpayers should, to the extent feasible, regularly monitor communications from the CRA. Taxpayers may consider using the CRA My Business Account portal during this time or redirecting mail. The CRA will process objections relating to entitlement to benefits and credits, but for other tax matters, the CRA will hold these accounts in abeyance and no collection action will be taken. The CRA and the Tax Court both have discretion to extend the deadline to file an objection for a one-year period after the original deadline is missed.
The deadline to file a notice of appeal to the Tax Court remains unchanged at this time. Such a notice of appeal may be filed electronically.
For litigation already in progress, the Tax Court has cancelled all sittings and conference calls up to and including May 1, 2020 and the Tax Court and all of its offices are closed until further notice. Chief Justice Rossiter has excluded the period from March 16, 2020 until May 1, 2020 from the computation of time under:
- the Tax Court of Canada Rules (General Procedure);
- all other Rules made under the Tax Court of Canada Act governing the conduct of matters under the Tax Court’s jurisdiction pursuant to section 12 of the Tax Court of Canada Act; and
- any order or direction of the Tax Court made prior to March 16, 2020.
The Tax Court will reassess by April 14, 2020 whether to extend these measures.
With respect to applications for judicial review of CRA decision-making, the deadline to file remains unchanged at this time (generally 30 days from the decision under review). The Federal Court will accept filings through an on-line portal or email if necessary. Otherwise the Federal Court has suspended deadlines and operations until April 17, 2020 except for urgent matters.
Although court operations are effectively suspended, many courts have continued to issue decisions. The deadline to file a notice of appeal to the Federal Court of Appeal from a Tax Court or Federal Court order remains unchanged at this time. The Federal Court of Appeal has indicated that it will temporarily accept email as a valid way to file a notice of appeal. The Federal Court of Appeal has also effectively suspended other deadlines and operations until at least April 17, 2020.
2020 federal budget
The Canadian 2020 federal budget, which was initially scheduled to be tabled on March 30, 2020 has been delayed and it is expected that a new date will be announced once Parliament resumes regular sittings on April 20, 2020.8
1 Provinces may enact similar economic relief at the provincial level. Ontario, for example, has introduced substantial financial measures as part of its action plan to respond to COVID-19, including an increase in the annual employer health tax exemption from $490,000 to $1 million for 2020. These measures were enacted into law by Bill 188 on March 25, 2020. The details of the Ontario Action Plan can be found at: https://budget.ontario.ca/2020/marchupdate/action-plan.html.
2 The weekly amount paid for the CERB is to be set by regulation, but the Government has announced that the maximum monthly amount is $2,000. The maximum number of weeks for which the CERB can be received is 16 weeks (unless another number of weeks is fixed by regulation).
3 The types of income included are set out in paragraph 6(1)(b) of the Canada Emergency Response Benefit Act.
4 Québec administers its own tax system which requires the filing of a separate Québec income tax return. Québec has also announced tax filing and payment relief. For further details, see: https://www.revenuquebec.ca/en/coronavirus-disease-covid-19/relief-measures-for-individuals-and-businesses/; Alberta also requires filing separate corporate income tax returns and has announced tax-related relief measures relating to COVID-19. For more details on the Alberta tax relief measures, see: https://www.alberta.ca/covid-19-support-for-employers.aspx.
5 The Charities Directorate has also suspended all operations for the time being, including registration and audit activities.
6 The CRA had announced on March 26, 2020 that the tax filing deferral measures would not apply to filings in respect of scientific research and experimental development deductions described in subsection 37(11) of the Income Tax Act (Canada) and investments tax credits described in paragraph (m) of that definition in subsection 127(9) of the Income Tax Act (Canada); however, this exception is not currently reflected on the CRA’s website. As such, we recommend that taxpayers contact the CRA to confirm the filing date for these types of filings.
7 At this time, the Government has not provided details on whether payment for the CEWS will work in the same manner as the TWS.
8 Ontario’s provincial government has also delayed the release of the provincial budget which was scheduled for March 25, 2020.