CEBA - Tax Treatment

On March 2, 2022 CRA added the following Q & A in respect of CERB to the CEWS FAQ:

6-2.4 Is the CEBA loan taxable to the recipient? New: March 2, 2022

Only the forgivable portion of a CEBA loan is taxable and it is taxable in the year in which the loan is received. For example, if a business received a forgivable portion of $10,000 in 2020, they would include that amount as income for the 2020 tax year, regardless of the year they repaid their CEBA loan.

However, if the forgivable loan is received in respect of an outlay or expense that is made or incurred before the end of the taxation year following the year in which the loan is received, the recipient can elect to:

• Not include the forgivable loan amount in the income of the year in which the loan is received, and

• Reduce the outlay or expense deduction by the same amount.

Recipients that make this election must do so via a signed letter accompanying the income tax return for the year the forgivable loan is received or for the year the outlay or expense is made or incurred, whichever is later. For further information on how to elect to reduce the amount of an outlay or expense, see archived Interpretation Bulletin IT-273R2.

If the amount included in income (or not deducted as outlay or expense) is subsequently repaid as a result of a legal obligation to repay the amount, a deduction for the repayment can be obtained for the year in which the repayment is made. For example, if a business was unable to meet the December 31, 2023 deadline, and then later repaid the entire loan (including the forgivable portion) in 2024, they could obtain a deduction equal to the forgivable portion for the 2024 tax year.

Watch! Life in the Tax Lane - March 2022

This FREE 10-minute video for Canadian Tax Professionals includes rapid-fire discussion of select recent developments in the wonderful world of Canadian tax presented by the Video Tax News Team. 

Sources:

• CRA Processing Issues – Changes to Refundable Tax Credits

• Principal Residence Exemption Education Letters

• Working From Home – Extended Relief

• Proposed Changes to CRA Administrative Processes

• Trusts – Changes to Reporting Requirements

• Immediate Expensing Incentive – Proposed CCA Expansion

Life in the Tax Lane is for general information purposes only and deals with dynamic, time-sensitive and complex matters that may not apply to particular facts and circumstances. The information provided should not be relied upon as a substitute for specialized professional advice in connection with any particular matter. For more information visit videotax.com/disclaimer. ©Video Tax News Inc. 2022, All Rights Reserved.

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Re-borrowing CEBA loans

On February 24, the CEBA FAQ was updated to include the following:

I repaid my CEBA loan. Am I able to re-borrow amounts previously paid?

No. CEBA loan repayments are final and any amounts repaid cannot be re-borrowed.

If your CEBA loan was initially structured as a revolving line of credit, the deadline to drawdown on your CEBA loan was January 20, 2022. After this date, no further drawdowns are permitted and any amounts repaid are not available to be re-borrowed.

Refundable Credit Filing Issue: Message to EFILERS

On February 18, CRA emailed the following message out to EFILERS:

Legislative changes

As we head into the 2022 filing season, we would like to provide you with important information that may impact tax return preparation and processing for a subset of your clients. There are several refundable tax credits included in Bill C-8, Economic and Fiscal Update Implementation Act, 2021:

• Return of Fuel Charge Proceeds to Farmers Tax Credit (Form T2043)

• Eligible Educator School Supply Tax Credit

Although your certified tax software may perform the calculations, the Canada Revenue Agency (CRA) cannot process claims for the above items until supporting legislation has been enacted. Therefore, if your clients plan to claim any of these credits, processing cannot be finalized until Royal Assent has been received. Conversations should be had with your clients on the options available to them to meet their individual needs.