It must feel like there have been a ton of updates to the Canada Emergency Business Account (CEBA) program. Well, there have! Below, I’ve summarized the pertinent December 4th adjustments. For more in-depth details, read on.
The Short Version
- Interest-free CEBA loan increased from $40,000 to $60,000
- Forgivable portion has increased from $10,000 to $20,000
- Forgivable portion to be reported as income and subject to tax in the year that it is received
- CEBA application deadline extended to March 31, 2021
- Applicants are now required to make attestations not previously required
- Repayment deadline remains December 31, 2022 to qualify for debt forgiveness component
- If you received CEBA as a line of credit, be sure to maximize debt to maximize the forgiven amount
- If December 31, 2022 repayment deadline missed, the full amount will convert to an interest-bearing, term loan due December 31, 2025
The Longer Version
As you may recall, originally CEBA offered a partially forgivable $40,000, interest-free loan to small businesses, including health professionals with practices. There were few conditions to qualify. As of December 4, 2020, CEBA increased from $40,000 to $60,000 for eligible organizations. The forgivable portion of the loan also increased from $10,000 to $20,000.
- If you’ve never applied for CEBA: First-time applicants to CEBA will now be applying for a $60,000 loan. Application to the program can be made through most financial institutions.
- If you have applied and successfully met eligibility criteria under the original $40,000 program: You will need to complete a further application to qualify for the additional $20,000 top-up loan.
The CEBA application deadline has been extended from December 31, 2020 to March 31, 2021. However, the repayment date to qualify for debt forgiveness remains unchanged; December 31, 2022 (not 2021 as many think!).
Key Changes to Eligibility Criteria
Under this latest version of CEBA, as a health professional, you are required to declare that your practice meets the eligibility criteria and that you agree to the program’s terms and conditions.
Unlike the previous program, this latest version targets financial assistance to practices and other entities experiencing financial hardship due to the pandemic. In order to qualify, you must now attest that, as a result of the pandemic, you:
- Are facing ongoing financial hardship (ex: decreasing revenues or cash reserves, or increasing operating costs);
- Intend to continue (or to resume) practicing; and
- Have made all reasonable efforts to reduce costs and adapt.
You must also certify that you have not used any CEBA funds (yes, including the original $40,000 loan) to;
- Prepay or refinance existing practice indebtedness,
- Pay dividends to shareholders,
- Give distributions or increases in management remuneration or,
- Increase related-party compensation.
Caution. If you’ve borrowed CEBA funds under the original $40,000 program: Applying for the additional $20,000 top-up loan amount could bind you to the newer, more stringent criteria not only for the $20,000 top-up amount but also for the original $40,000 loan. Whereas if you refrain from applying for the expanded $20,000 top-up loan, then the terms and conditions of the original $40,000 loan will remain in force.
Key Changes to Loan Forgiveness Conditions
The CEBA program continues to have a forgivable component, as long as the loan is repaid by December 31, 2022:
- 25% of the original loaned amount to a maximum of $40,000
- 50% of the loan balance in excess of $40,000
The forgivable portion of CEBA represents government assistance and as such is taxable when received, not in 2022 when the loan is repaid. So, keep this in mind.
What Needs to be Repaid by December 31, 2022
CEBA loan forgiveness conditions require that 75% of the first $40,000 borrowed plus 50% of any portion of the amount borrowed under the expanded program must be repaid by December 31, 2022. Failing to repay this amount will result in the borrower forfeiting their entitlement to any loan forgiveness. The remaining non-forgivable portion of the loan can be repaid at any time prior to December 31, 2022, without penalty or loan forgiveness forfeiture.
What Happens if you Don’t Repay in Time
In the event that the loan is not paid by December 31, 2022, the unpaid portion will convert to a term loan on January 1, 2023, bearing interest at 5% annually. The full principal is due on December 31, 2025. Between January 1, 2023 and December 31, 2025, only interest payments are required to be made.
Important Note on How Banks are Administering CEBA Differently
A word about banks and the different ways they are dispersing CEBA funds:
- Some banks have deposited the $40,000 loan directly into a client’s operating bank account. Simple. There is nothing further required as a result.
- Other banks have made $40,000 available through a line of credit. This is not quite so simple.
Ex: According to taxtips.ca, RBC has set up the CEBA loan like a Visa.
Here’s why you need to pay attention: If your bank does not automatically draw funds from this line of credit into your operating bank account, then you will NOT be considered to have received the loan and will NOT be eligible for the full and available debt forgiveness component.
In summary, some differences exist between banks in the administration of CEBA loans such as the draw deadline. So, read your loan agreement carefully to confirm these details or contact your health care bank representative for clarification.
- If you qualify for the expanded CEBA program, apply online through your bank directly.
- If you have CEBA-related questions, contact the CEBA call centre at 1-888-324-4201 and an agent will return your call within 3 business days according to the CEBA website.
- If you’ve tried all the other CEBA support channels and still need additional assistance navigating your unique CEBA situation, reach out to Jonathan Tucker at (905) 601-5659 x101 or by email at email@example.com (Priority to be given to existing tax clients).
- If you have friends or colleagues who you feel would benefit from this advisory, feel free to pass it on.
- If you’re a health care financial professional and your colleagues are struggling with CEBA or need assistance with this, or other government programs, feel free to share this content with them.