Canada Emergency Business Account Update
June 19, 2020
If you are a health care professional previously excluded from the Canada Emergency Business Account (CEBA) loan program, here is some welcomed news: the CEBA eligibility criteria have been expanded. As of Friday, June 19, 2020, applicants may apply under the 2020 Eligible Non-Deferrable Expenses stream.
CEBA Eligibility Criteria1
Under the expanded CEBA program, health care practitioners operating as sole proprietors or who received dividend income instead of employment income may now qualify under CEBA.
When making application, the following information is required:
- proof of Eligible Non-Deferrable Expenses of between $40,000 and $1.5 million
- proof of a business operating account2 opened no later than March 1, 2020, at a participating financial institution
- a Canada Revenue Agency business number
- a 2018 or 2019 income tax return
Sole proprietors must have a business bank account; personal bank accounts will not be accepted.
Professional practices of a Federal Member of Parliament or Senator do not qualify for CEBA.
How to Apply for CEBA
CEBA loan applications must be made online through your financial institution.
The new 2020 Eligible Non-Deferrable Expense stream is a guided two-step application process:
- Step 1: An application will be made through your financial institution’s website. Upon completion, you will then be directed to Step 2.
- Step 2: Next, you will be directed to a CEBA website to provide supporting documentation to complete the application.
The Government will assess information submitted in Step 1 together with the supporting documentation provided in Step 2. If your application is approved, the government will notify your financial institution and provide funding for your CEBA loan via direct deposit to your bank account 10 to 15 days following submission of application and all supporting information.
Restrictions on the Use of Borrowed Funds
If funds are borrowed under this program, they may only be used to pay non-deferrable operating expenses which include, without limitation, payroll, rent, utilities, insurance, property tax and regularly scheduled debt related payments. Funds may not be used for expenses such as prepayment/refinancing of existing debts, payments of dividends, distributions and increases in management compensation.
What Are Eligible Non-Deferrable Expenses?
Eligible Non-Deferrable Expenses have been identified by the government as follows:
- Wages and other employment expenses to independent (arm’s length) third parties
- Rent or lease payments for real estate or capital equipment used for practice purposes
- Payments incurred for insurance-related costs
- Payments incurred for property taxes, telephone and internet as well as utility costs such as gas, oil, electricity and water
- Payments for regularly scheduled debt service
- Payments incurred under agreements with health care professionals operating as independent contractors and fees required to maintain licenses, authorizations, or permissions necessary to conduct business by the borrower.
Adjustments to be Considered When Calculating Eligible Non-Deferrable Expenses
If in receipt of other COVID-19 government programs, the CEBA website implies that assistance from other COVID-19 assistance programs represent adjustments to be considered when calculating Eligible Non-Deferrable Expenses. For example, receipt of the Canada Emergency Wage Subsidy (CEWS) would reduce wages and other employment expenses. But this is not explicitly stated. And even if it were, what period would an applicant report, given that the CEWS program is ongoing and applications are ongoing? And, are Eligible Non-Deferrable Expenses reported based upon future anticipated or historic disbursements?
No legislation or regulations have yet been released to address questions such as these. Instead, applicants are left to guess in the absence of clear instructions. So, in the absence of clarity, it would be advisable to disclose applications made to other COVID-19 government programs to avoid any suggestion of double dipping in the event of a future audit, when making application under CEBA.
The more commonly accessed programs which you may have applied for and which you may wish to disclose are:
- Canada Emergency Wage Subsidy
- 10% Temporary Wage Subsidy
- Canada Emergency Commercial Rent Assistance, Regional Relief and Recovery Fund
Reimbursements of practice-related expenses, other than COVID-19 government programs, would best be disclosed as part of a CEBA 2020 Eligible Non-Deferrable Expense stream application also. For example, payments received from OHIP’s Medical Liability Protection Reimbursement Program reduce a health care professional’s expense. This is just one of several examples that comes to mind. So, consider these and any other reimbursements as you complete your CEBA 2020 Eligible Non-Deferrable Expense stream application.
Loan Repayment and Debt Forgiveness
Repaying the balance of the loan on or before December 31, 2022, will result in loan forgiveness of 25% of the original loan (up to $10,000). If the balance of the loan is not repaid by December 31, 2022, the remaining balance will be converted to a 3-year term loan at 5% annual interest, paid monthly, effective January 1, 2023. (The forgiven amount will be taxable to your practice and subject to income tax.)
More Questions than Answers – A Concluding Comment
As already noted, legislation and regulations addressing the expansion of the CEBA program have yet to be released. It is unclear in what period the borrower’s eligible non-deferable expenses are to be measured. Eligibility under the initial payroll stream was based on 2019 payroll, so perhaps eligibility under this second stream is also based on 2019 expenses. Government information refers to 2020 Eligible Non-Deferrable Expenses. Are 2020 expenses then the basis for application instead? Are borrowers supposed to project their 2020 expenses? It is unclear at this time.
If you have any questions or would like assistance making application for various COVID-19 financial assistance, please contact Jonathan Tucker. Contact information is set out below.
1 The following conditions are set out in the application:
- Only one application for support under the CEBA Program may be made
- It is the intention of your practice to continue to operate
- Participation in post-funding surveys conducted by the Government of Canada or any of its agents is agreed to, and
- Promotion of violence, hatred, or discrimination on the basis of sex, gender identity or expression, sexual orientation, colour, race, ethnic or national origin, religion, age, or mental or physical disability, contrary to applicable laws is not engaged in.
2 The borrower must not have been in arrears on existing borrowing facilities with the lender by 90 days or more as of March 1, 2020.
Jonathan A. Tucker
CPA, CA, LPA