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CEBA: Physicians’ questions about the loan

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

When it was first introduced, CEBA offered a loan of $40,000, and if you repay the balance of the loan by December 31, 2022, the remaining $10,000 will be forgiven. In December 2020, the government expanded CEBA so you could borrow an additional $20,000, 50% of which will be forgiven if repaid by December 31, 2022.

If you didn’t apply for the original $40,000, you have until June 30, 2021, to apply for the $60,000 loan (and get $20,000 forgiven) through your bank or credit union.  

CEBA

Date

Amount

Repayable

Forgiven

CEBA 1.0

Expanded

April 9, 2020

Dec 4, 2020

$40,000

$20,000

$30,000

$10,000

$10,000

$10,000

CEBA 2.0

Dec 4, 2020

$60,000

$40,000

$20,000

1. How do you apply for CEBA?

You apply for CEBA through your primary financial institution. Over 230 financial institutions are participating in the CEBA program.

2. What are the CEBA eligibility requirements?

There are 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 and wages to independent (arm’s-length) third parties.  

3. When is the CEBA application deadline?

You can apply for the $60,000 CEBA loan until June 30, 2021. (You can no longer apply for the original $40,000 CEBA loan.)

4. When does the loan need to be repaid?

Whether you applied for the $40,000 loan (and $20,000 expansion) or $60,000 loan, you need to repay the loan (other than the amount available to be forgiven) on or before December 31, 2022, in order to keep the forgiven amount.

5. 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.

6. What happens if you don’t pay back the loan on or before December 31, 2022?

Starting on January 1, 2023, the unpaid balance will be charged interest of 5% per year. Your financial institution will determine the frequency of interest payments. You will be required to make interest payments until the principal is due in full (that is, you will receive no loan forgiveness) on December 31, 2025.

7. What happens if you don’t repay the loan by December 31, 2022, 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. We recommend you talk to your tax advisor to determine if any interest you might end up paying on your CEBA loan can be deducted based on your personal circumstances.

8. 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 apply and are approved for the $20,000 additional CEBA loan in 2021, $10,000 of that will be included in your taxable income in 2021.1  

9. 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, 2022, 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, and so for this reason we recommend keeping the funds available rather than unnecessarily repaying them earlier 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.

10. Is my corporation eligible for CEBA if I employ family members?

There are two streams of eligibility. As a physician, chances are that you qualified for the CEBA under on the payroll stream (this includes paying yourself a salary). The arm’s-length rule is for wages paid to independent third parties under the non-deferrable expense stream.

11. If I have more than one medical professional corporation, can I apply for CEBA for each company?

If each of your qualifying businesses has its own nine-digit Canada Revenue Agency business number, then you can apply for CEBA for each one.

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. 

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