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Feds announce 75% wage subsidy, $40,000 interest-free loans for business, deferral of import duties

Friday, March 27, 2020 @ 3:51 PM | By Cristin Schmitz


Ottawa is offering a 75 per cent wage subsidy to “qualifying” small- and medium-sized businesses as part of new COVID-19 support measures, including a government-guaranteed, interest-free and partially forgivable, $40,000 loan for businesses with payrolls of less than $1 million, and deferral until June 30, 2020, of GST/HST and import duties.

Prime Minister Justin Trudeau announced the three new emergency financial support measures March 27, saying the government’s aim is to ensure that small- and medium-sized enterprises (SME) can stay in business, retain their employees or return laid off employees to the payroll and resume full operation quickly after the current COVID-19 crisis subsides.

Prime Minister Justin Trudeau

The government’s higher wage subsidy is retroactive to March 15. It was not immediately clear at press time if it completely replaces the three-month wage subsidy announced by the government March 18 that was equal to 10 per cent of the remuneration paid to employees during that period, up to a maximum subsidy of $1,375 per employee, and $25,000 per employer.

Trudeau and Finance Minister Bill Morneau did not provide reporters with specific details on eligibility criteria or what caps, if any, will apply to the 75 per cent wage subsidy. Trudeau said more information will likely be forthcoming March 30.

(A backgrounder provided by the government earlier this month on the originally announced benefit said eligible employers would include companies eligible for the small business deduction, as well as non-profit organizations and charities.)

Morneau did indicate that a “significant” COVID-19-related decline in revenue will be an eligibility criterion. A March 27 press release from the Prime Minister’s Office indicated that “more details on eligibility criteria will start with the impact of COVID-19 on sales, and will be shared before the end of [March].”

To further support small businesses, the prime minister’s news release also said the federal government will allow businesses, including self-employed individuals, to defer GST/HST payments until June 30, as well as customs duties owed for imports. This is the equivalent of providing up to $30 billion in interest-free loans to Canadian businesses, Morneau said. The move aims to help businesses so they can continue to pay their employees and their bills, and help ease cash-flow challenges across the country.

The government also announced it is launching a “Canada Emergency Business Account.” The program will provide up to $25 billion to eligible financial institutions so they can provide interest-free loans to small businesses with payrolls of less than $1 million. Those loans in the form of lines of credit — up to $40,000 guaranteed and funded by the government of Canada — will ensure that small businesses have access to the capital they need, at a zero per cent interest rate, so they can pay for rent and other important costs over the next number of months, the government said. Morneau said 25 per cent of the loan — i.e. $10,000 — may be forgiven if the full amount of the loan is paid back by Dec. 31, 2022.

The government also said it is launching a new Small and Medium-sized Enterprise Loan and Guarantee program that will enable up to $40 billion in lending, supported through Export Development Canada and Business Development Bank, for guaranteed loans when small businesses go to their financial institutions in order to help them weather the impacts of COVID-19. “This is intended for small and medium-sized companies that require greater help to meet their operational cash flow requirements,” the government said.

Finance Minister Bill Morneau

“These new investments will help Canada’s financial institutions provide the credit and liquidity options that a range of Canadian businesses need immediately,” the government said. “The government of Canada understands that some sectors have been disproportionally impacted by the COVID-19 pandemic. We will continue to carefully monitor all developments, and take further action in the near term … and the government of Canada will continue to work around the clock to ensure all Canadians and small businesses get the support they need to weather this crisis.”

Morneau said in a statement, “with the new measures we are announcing today to support businesses, we are showing once again that we will do what we must to ensure that workers and businesses are supported through the outbreak, and that our economy remains strong in the face of adversity.”

The government said that deferral to June of GST/HST payments, as well as customs duties owing on imports, “will generally apply to remittances” that become due in March, April, and May 2020. “These amounts would normally have been due to the Canada Revenue Agency and the Canada Border Services Agency as early as the end of this month,” the government said. “This measure will take effect immediately, through existing authorities.”

The government said the Canada Revenue Agency is introducing a series of administrative measures to remove some of the burden on businesses experiencing financial hardship.

The government said the new SME loan and guarantee program will operate as follows:

  • Export Development Canada will provide guarantees to financial institutions so that they can issue new operating credit and cash flow term loans of up to $6.25 million to small and medium-sized businesses. These loans will be 80 per cent guaranteed by Export Development Canada, to be repaid within one year.
  • SME businesses can also get support through a new Co-Lending Program that will bring the Business Development Bank of Canada together with financial institutions to co-lend term loans to these businesses for their operational cash flow requirements. Eligible businesses may obtain incremental credit amounts of up to $6.25 million through the program, which will be risk-shared at 80 per cent between the Business Development Bank of Canada and the financial institutions. Eligible financial institutions will conduct the underwriting and funding directly for customers.

The government said it has already introduced several measures to support businesses affected by COVID-19:

  • Providing eligible small employers a temporary wage subsidy for a period of three months. The subsidy will be equal to 10 per cent of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration.
  • Extending the maximum duration of the work-sharing program, from 38 weeks to 76 weeks, for workers who agree to reduce their normal working hours because of developments beyond the control of their employers.
  • Establishing a Business Credit Availability Program, largely targeted to small and medium-sized businesses, through the Business Development Bank of Canada and Export Development Canada. These organizations are working closely with private sector lenders to co-ordinate on credit solutions for individual businesses, including in sectors such as oil and gas, air transportation and tourism.
  • Increasing credit available for farmers and the agri-food sector through Farm Credit Canada.
  • Deferring the payment of income taxes. The government is allowing all taxpayers to defer, until after Aug. 31, 2020, the payment of income tax amounts owed on or after March 18, and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.

If you have any information, story ideas or news tips for The Lawyer’s Daily please contact Cristin Schmitz at Cristin.Schmitz@lexisnexis.ca or at 613-820-2794.