Canada’s Care of Businesses During the COVID-19 Pandemic

 In Business Law

As the number of confirmed cases of COVID-19 rises in Canada, employers are facing difficult decisions concerning how to balance the health of their employees with the health of their businesses. Many companies have directed their employees to work remotely, some have resorted to temporarily limiting hours, closing their doors or laying off employees, while others are attempting to operate as usual. As a result of the spreading virus, almost all Canadian businesses are experiencing a decrease in revenue, while bills and rental payments remain due.

To assist businesses in the financial challenges they are currently facing, Canada has implemented a series of actions with the goals of aiding businesses in employee retention, offering flexibility related to tax filings and mortgage payments, ensuring that businesses have access to credit and supporting financial market liquidity.

Employee Retention

To prevent layoffs, the Canadian government is proposing to provide eligible small businesses (those already eligible for the small business deduction), non-profit organizations and charities with a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that three-month period up to a maximum of $1,375.00 per employee and $25,000.00 per employer. Businesses will benefit further from this subsidy by reducing remittances of income tax on their employees’ remuneration.

Tax Filings and Mortgage Payments

The Canadian Revenue Agency (CRA) will allow all businesses to defer income tax payments that become due between March 18, 2020 and August 31, 2020, including tax balances and installments due under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period. The CRA will refrain from contacting small and medium-sized businesses to initiate post-assessment GST/HST reviews or income tax audits for the next four weeks. For most businesses, the CRA will also suspend audit interaction with taxpayers and representatives. Small business owners can take advantage of the CRA’s free and confidential Liaison Officer service, now over the phone, to gain an understanding of their tax obligations, deadlines and options for relief.

The federal government has also been working with major chartered banks to ensure that mortgage payments for small businesses can be deferred or reduced. We recommend that you contact your bank for further details.

Access to Credit and Boosting Financial Market Liquidity

In response to the economic challenges now faced by businesses during the COVID-19 pandemic, Export Development Canada (EDC) and the Business Development Bank of Canada (BDC), through the Business Credit Availability Program (BCAP), will work with financial institutions to provide over $10 billion in additional support to small and medium-sized businesses with viable business models. The EDC and BDC are working with private lenders to coordinate on credit solutions for businesses in sectors such as oil and gas, air transportation and tourism. The near-term credit available to farmers and the agri-food sector will also be increased through Farm Credit Canada.

Any creditworthy Canadian business seeking financing to support its operations and retain employees may apply. Canadian companies should first contact their financial institution account manager for more information. In some cases, businesses will be referred directly to the BDC or EDC. Companies may also contact the BDC or EDC directly if they already have an established business relationship with these organizations.

In addition, the Office of the Superintendent of Financial Institutions announced it is lowering the Domestic Stability Buffer to 1% of risk-weighted assets, effective immediately and continuing for at least 18 months. This action will allow Canada’s large banks to inject $300 billion of additional lending into the economy. The Bank of Canada has also cut its interest rate to 0.75%.

The government announced on March 16, 2020 that it is launching an Insured Mortgage Purchase Program (IMPP) under which the government will purchase up to $50 billion in government-insured mortgages to provide stable funding to banks. The central bank has stated that it will begin purchasing about $500 million a week in mortgage bonds and accept a wider set of securities in its term repo operations. The bank will also allow more non-mortgage loans to be used as collateral in a separate overnight facility. The Bank of Canada has further pledged, beginning on March 23, 2020, to acquire securities directly linked to corporate credit lines of small and medium-sized businesses weekly and to widen the terms to include six-month and 12-month operations.

Moving Forward

If eligible, we encourage our clients to take advantage of these new government benefits. Monitor future federal government announcements about how to apply for the wage subsidy, check the BDC and EDC websites for further details on how to apply for credit and contact your bank regarding deferral of loan payments.

Although the government has extended the deadlines for payment of corporate tax owing, an announcement has not yet been made regarding deadlines for corporate tax returns. Therefore, we recommend that businesses continue to file their corporate income tax and GST/HST returns on time.

Should you have questions or concerns about how COVID-19 may be impacting your business and what Canada is doing to help or if you require assistance with employment issues, family, wills and estates or other legal matters during this challenging time, please contact our team.

This blog post was written by Jade Renaud, a member of the Business Law team.  Jade can be reached at 613-369-0373 or at jade.renaud@mannlawyers.com.

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