CEBA: Physicians’ questions about the loan and loan repayment

Updated Nov. 17, 2022

The Canada Emergency Business Account (CEBA) was an interest-free partially forgivable loan that eligible businesses could access if they experienced financial hardship due to the COVID-19 pandemic.

When first introduced in April 2020, CEBA offered a loan of $40,000 — and if $30,000 was repaid by December 31, 2022, the remaining $10,000 would be forgiven. In December 2020, the government expanded CEBA so you could borrow an additional $20,000, and if $10,000 was repaid by December 31, 2022, the other $10,000 would be forgiven.

On January 12, 2022, the deadline was extended to December 31, 2023.

1. When does the loan need to be repaid?

Whether you applied for the $40,000 loan (and $20,000 expansion) or the $60,000 loan, you need to repay the loan (other than the forgiven amount) on or before December 31, 2023, in order to keep the forgiven amount.

2. What happens if you don’t pay back the loan on or before December 31, 2023?

Starting on January 1, 2024, you will be charged interest of 5% per year on the unpaid balance. Your financial institution will determine the frequency of interest payments. You will be required to make interest payments until the principal in full is due (that is, no loan forgiveness) on December 31, 2025.

3. How was the CEBA made available?

You could apply for CEBA through your primary financial institution. The deadline to apply for the $60,000 loan (CEBA 2.0) was June 30, 2021. More than 230 financial institutions are participating in the CEBA program.

4. What were the CEBA eligibility requirements?

There were two streams of eligibility:

1. Payroll stream: You paid salaries to employees (i.e., employment income) between $20,000 and $1.5 million in the 2019 calendar year.
2. Non-deferrable expense stream: You paid less than $20,000 in total employment income, but had non-deferrable expenses of between $40,000 and $1.5 million in 2019 and you have filed your 2019 tax return. Non-deferrable expenses include: rent, property tax, utilities, insurance, wages to independent (arm’s-length) third parties.  

5. What happens if you don’t repay the loan by December 31, 2023, and you end up having to pay interest? Is the interest tax-deductible?

If you end up paying interest on your CEBA loan, that interest could be tax-deductible, given that interest paid on borrowed funds used to obtain or earn income is generally tax-deductible. Talk to your tax advisor to determine whether any interest you might end up paying on the loan can be deducted, based on your personal circumstances.

6. What can the CEBA loan be used for?

The purpose of the loan is to ensure you can stay in business. It’s expected that you will continue to operate your business, or will apply the funds to resuming operations if you borrow these funds.

7. Is the forgiven portion of the loan taxable?

The loan forgiveness amount is considered taxable in the year you received it. Therefore, if you received the original CEBA loan of $40,000 in 2020, $10,000 of that amount was a part of your taxable income. If you applied and were approved for the $20,000 additional CEBA loan in 2021, $10,000 of that would be included in your taxable income for 2021.¹  

8. Is there any benefit to repaying the loan earlier than the deadline? Will the amount still be forgiven?

Since the CEBA loan is interest-free until December 31, 2023, there is no advantage to repaying the loan earlier than you need to. It’s hard to predict what additional or unexpected business expenses might arise, so we recommend keeping the funds available rather than unnecessarily repaying them sooner than required. If you’re worried about using the funds unintentionally, consider putting them in a separate business bank account. If you repay the CEBA early, the forgiven amount is still yours to keep.

Your tax advisor and accountant can help you answer more specific questions. If you have any questions about tax planning, investing or retirement planning, contact an MD Advisor*.

*MD Advisor refers to an MD Management Limited Financial Consultant or Investment Advisor (in Quebec), or an MD Private Investment Counsel Portfolio Manager.

¹ CRA Technical Interpretation 2020-0861461E5: “Tax treatment of Loan Forgiveness under CEBA”

The above information should not be construed as offering specific financial, investment, foreign or domestic taxation, legal, accounting or similar professional advice nor is it intended to replace the advice of independent tax, accounting or legal professionals.