The Canada Emergency Business Account (“CEBA”)

Written by John Grummett, CPA, CA | Taylor Leibow LLP

In an effort to support small to medium sized businesses during COVID-19, the Federal government introduced the CEBA loan program.  It was meant to assist businesses, through providing financing, in paying expenses that could not be deferred or avoided so the business can navigate the period of economic shutdown and allow the business to be in a position to relaunch as the economy reopens.

Originally it was introduced on April 9, 2020 but has undergone some changes since its original introduction.

What is the CEBA Loan?

The CEBA loan is an interest free loan of up to $40,000.  If the loan balance is repaid before December 31, 2022, 25% of the balance (to a maximum of $10,000) will be forgiven.

Who is Eligible for a CEBA Loan?

There are two streams that will allow a business to qualify for a CEBA loan.  These are either the Payroll Stream or the Non-Deferrable Expenses Stream.  Non-Profit organizations may also qualify for the CEBA loan.

Payroll Stream

There are a number of requirements to be eligible to obtain the CEBA loan under the payroll stream.  They are:

  • The borrower is a Canadian operating business in operation as of March 1, 2020.
  • The borrower has a Canada Revenue Agency Business Number.
  • The borrower’s total employment income paid in 2019 was between $20,000 and $1,500,000 (see the exception below).
  • The borrower has a chequing/operating account with the lender which is its primary financial institution and the account was opened prior to March 1, 2020 and was not in arrears more than 90 days as of March 1, 2020.
  •   The borrower must do their banking through a business account.  If the borrower operates through a personal bank account they are not eligible for the CEBA loan.  
  • The borrower can only apply for a CEBA loan from one financial institution.
  • The borrower acknowledges that it is their intention to continue to operate the business or resume operations.
  • The borrower agrees to participate in post-funding surveys conducted by the Government of Canada.

Non-Deferrable Expenses Stream

For borrowers with less than $20,000 of total employment income paid in the 2019 calendar year, in addition to the above requirements, the borrower must meet the following:

  • The borrower has a Canada Revenue Agency Business Number and has filed a 2018 and 2019 tax return.
  • The borrower has non deferrable expenses ranging between $40,000 and $1,500,000.

What are Non-Deferrable Expenses?

The expenses that qualify as non deferrable expenses include the following:

  • Wages and other employment expenses to independent (arm’s length) third parties;
  • Rent or lease payments for real estate used for business purposes;
  • Rent or lease payments for capital equipment used for business purposes;
  • Payments incurred for insurance related costs;
  • Payments incurred for property taxes;
  • Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet
  • Payments for regularly scheduled debt service;
  • Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower; 
  • Any other expense in a category other than the above as may be indicated by the government of Canada under the Web Page from time to time as being an Eligible Non-Deferrable Expense for the purpose of the Program;
  • Payments incurred for materials consumed to produce a product ordinarily offered for sale by the Borrower.

Any amounts received by the borrower under other COVID-19 relief programs would reduce the amount of the non deferrable expenses.  These would be amounts received under programs such as the Canada Emergency Wage Subsidy and the 10% Temporary Wage Subsidy.  This is not a complete list of all of the programs.

How are the Non-Deferrable Expenses Calculated?

Non deferrable expenses may have already been incurred when the program was introduced.  They include those expenses that are incurred in January or February 2020 or where you have a contractual obligation that existed on March 1, 2020 for the borrower to pay the expense during the remainder of 2020. 

Wages to non arms length parties or dividends paid to shareholders do not qualify as non-deferrable expenses.

How Does a Business Apply for a CEBA Loan?

The CEBA Loan is applied for through the borrower’s primary financial institution and the process depends on whether the applicant is applying under the payroll stream or the non-deferrable expense stream.  

  1. Payroll stream – CEBA applications under the payroll stream will be completed directly through the financial institution and the financial institution will provide the Government of Canada the information to assess the application.
  2. Non-deferrable expense stream – CEBA applications under the 2020 Eligible Non-Deferrable Expenses Stream will follow a two-step process:
    1. Step 1: Applicants will initiate applications directly at their financial institution and the financial institution will then direct applicants to Step 2 of the application process.
    2. Step 2: Following the initial application through the financial institution, applicants will be directed to a CEBA website to provide electronic or paper copies of receipts / invoices / agreements to be uploaded as evidence of your 2020 Eligible Non-Deferrable Expenses and to complete the application.  The Government of Canada will then assess application information submitted via financial institutions in Step 1 together with the supporting documentation and information provided in Step 2. 

The application deadline is August 31, 2020.  The deadline to upload supporting documents is September 3, 2020.

Further details on CEBA loans can be obtained from your financial institution or https://ceba-cuec.ca/ 

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