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Apr 3, 2020
Federal Government Introduces Economic Measures Responding to COVID-19 Pandemic
The federal government has announced a series of economic measures intended to help stabilize the economy and provide support to Canadian individuals and businesses in dealing with the COVID-19 pandemic. While some of these measures may be subject to change, the federal government has provided the broad outlines of the measures to be implemented.
Measures Aimed at Businesses
The measures intended to assist business in responding to the COVID-19 pandemic are largely aimed at avoiding layoffs, ensuring access to credit, easing regulatory burden, and supporting the liquidity of financial markets generally. These measures include the following:
- Wage Subsidies. To support businesses that are facing revenue losses and to help prevent layoffs, the government has introduced two different temporary wage subsidies which will act in parallel. The Canada Emergency Wage Subsidy (the “75% Subsidy”) will provide a 12-week wage subsidy, of up to 75% of wages paid starting March 15, 2020, to eligible businesses that have experienced a year-over-year revenue decline of at least 30%. For further details on the 75% Subsidy, please click here.
- If an employer is not eligible to receive the 75% Subsidy, then it may still be possible to qualify for the Temporary Wage Subsidy for Employers (the “10% Subsidy”), which will provide eligible employers with a temporary wage subsidy for a period of three months equal to 10% 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 10% Subsidy by reducing their remittances of federal, provincial, or territorial income tax withheld on their employees’ remuneration. An employer that does not pay salary, wages, bonuses, or other remuneration to an employee between March 18, 2020, and June 19, 2020 cannot receive the 10% Subsidy even if it is an eligible employer.
- An eligible employer for the purposes of the 10% Subsidy is a non-profit organization, a registered charity, an individual (other than a trust), a Canadian-controlled private corporation (CCPC), or a partnership where all of its members are either a CCPC, an individual (other than a trust), a registered charity, or another partnership with the same types of members. In each case listed above, an employer is only eligible if the employer had an existing business number and payroll program account with the CRA on March 18, 2020, and pays salary, wages, bonuses, or other remuneration to an employee. CCPCs are only eligible for the 10% Subsidy if their taxable capital employed in Canada for the preceding taxation year, calculated on an associated group basis, is less than $15 million. Associated CCPCs will not be required to share the maximum subsidy of $25,000 per employer.
- Employers eligible for the 10% Subsidy can start reducing remittances of federal, provincial, or territorial income tax in the first remittance period that includes remuneration paid between March 18, 2020, and June 19, 2020. Eligible employers must still continue deducting income tax, Canada Pension Plan contributions, and Employment Insurance premiums from salary, wages, bonuses, or other remuneration paid to employees. If the income taxes deducted are not sufficient to offset the value of the 10% Subsidy in a specific period, eligible employers can reduce future remittances. This includes reducing remittances that may fall outside of the period for the 10% Subsidy (i.e. after June 19, 2020).
- Eligible employers that wish to take advantage of the 10% Subsidy must keep information to support their subsidy calculation, including the total remuneration paid between March 18, 2020, and June 19, 2020; the federal, provincial, or territorial income tax deducted from that remuneration; and the number of employees paid in that period.
- If an employer takes advantage of the 10% Subsidy but subsequently applies for and is eligible for the 75% Subsidy, then the government has indicated that it will generally deduct any amounts paid under the 10% Subsidy from the amounts later paid under the 75% Subsidy.
- Business Credit Availability Program. Through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC), more than $65 billion in direct lending and other types of financial support will be available at market rates to businesses under stress as a result of the COVID-19 pandemic, largely targeted toward small and medium-sized businesses. This includes the Canada Emergency Business Account, which will provide interest-free loans of up to $40,000 to small businesses and not-for-profits (i.e. with total payroll in 2019 between $50,000 and $1 million). It also includes loan guarantees from EDC and a co-lending program from BDC, with a focus on creditworthy business clients who would otherwise have insufficient access to credit. Business seeking support through these programs should contact the financial institutions with whom they have a pre-existing relationship; the financial institution will then work directly with the government, BDC or EDC, as applicable. These programs are currently in the process of being rolled out in the three weeks after March 27, 2020. Separately, near-term credit for farmers and the agri-food sector through Farm Credit Canada will also be increased by approximately $5 billion in lending capacity.
- Extending the Employment Insurance Work Sharing Program. The current EI Work Sharing Program provides employment insurance benefits to workers who agree to reduce their normal working hours as a result of developments beyond the control of their employers. Work Sharing Agreements are made between employers, employees (and their unions, if applicable) and Service Canada. The government intends to extend the eligibility of such agreements to 76 weeks (from the original 38 weeks), to ease eligibility requirements (including easing recovery plan requirements for the duration of the Work Sharing Agreement and waiving the mandatory waiting period between agreements), and to streamline the application process.
- More Time to Pay Income Taxes. The CRA will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief applies 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. The CRA will not contact any small or medium (SME) businesses to initiate any post assessment GST/HST or income tax audits for the next four weeks. For the vast majority of businesses, the CRA will temporarily suspend audit interaction with taxpayers and representatives.
- Deferral of GST/HST Remittance and Customs Duties. Businesses will be permitted to defer remittance of GST/HST until June 30, 2020 for certain reporting periods. For monthly filers, this includes the February, March and April 2020 reporting periods; for quarterly filers, this includes the January 1, 2020 through March 31, 2020 reporting period; and for annual filers, this includes the amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year. Businesses will also be permitted to defer payment of certain GST and customs duties on imported goods (i.e. amounts owing for March, April and May) until June 30, 2020. It should be noted that these amounts will remain owing – this change simply allows payment to be delayed as specified above. For further considerations relating to this GST/HST deferral, including potential director’s liability, please click here.
- Other Measures to Support Liquidity
- Cutting Interest Rates. The Bank of Canada reduced its target overnight rate (i.e. the policy interest rate) from 1.75% to 1.25% on March 4, 2020, and again from 1.25% to the current rate of 0.75% on March 16, 2020. These are intended as proactive measures to mitigate the negative shocks to Canada’s economy from the pandemic and the recent drop in oil prices.
- Adjustment of Domestic Stability Buffer. On March 13, 2020, the Office of the Superintendent of Financial Institutions (OSFI) announced that it would lower the Domestic Stability Buffer by 1.25% of risk weighted assets (i.e. from 2.25% to 1.00%), effective immediately. The effect of this change is that approximately $300 billion in additional lending capacity is available to the six domestic systemically important banks (i.e. BMO, CIBC, National Bank, RBC, Scotiabank, and TD) to ensure liquidity in the economy.
- Insured Mortgage Purchase Program. Through CMHC, the federal government intends to purchase up to $150 billion of insured mortgage pools as part of a revised Insured Mortgage Purchase Program, thus providing stable funding to banks and mortgage lenders. The first purchase operation occurred on March 24, for a total of $5 billion.
- Further Bank of Canada Actions. The Bank of Canada has announced that it will adjust its market liquidity operations to maintain market functioning and credit availability, and that it will broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the Standing Liquidity Facility, with the exception of the non-mortgage loan portfolio. The Bank of Canada is also prepared to provide support to the Canada Mortgage Bond market, including the potential purchase of Canada Mortgage Bonds on the secondary market.
Measures Aimed at Individuals
Many of the measures are aimed at assisting individuals who are facing hardship or job loss as a result of the COVID-19 pandemic. These measures include the following:
- GST Credit and Canada Child Benefit. The federal government will make a one-time special payment by early May 2020 through the Goods and Services Tax credit (GSTC) to 12 million low-and modest-income families. In addition, the Government will increase the maximum annual Canada Child Benefit (CCB) payment by $300 per child for the 2019-2020 benefit year. Together, the enhancements of the GSTC and CCB will give a single parent with two children and low to modest income nearly $1,500 in additional short-term support. No further application is needed to receive these additional benefits (other than applying for the Canada Child Benefit, if not already done).
- Canada Emergency Response Benefit. In place of the previously-announced Emergency Care Benefit and Emergency Support Benefit, this new taxable benefit, available between March 15, 2020 and October 3, 2020, would provide up to $500 per week for 16 weeks to certain Canadian workers who lose their income due to the COVID-19 pandemic. This benefit will not be available to those who quit their employment voluntarily. The government has indicated that this benefit will be available to Canadian residents who (i) are at least 15 years old; (ii) cease working for a specified period of time (see below) for reasons related to COVID-19 or are eligible for EI regular or sickness benefits; (iii) had income of at least $5000 in 2019 or in the 12 months prior to their application; and (iv) do not receive income, benefits or allowances during that time. The cessation of work and loss of income must occur for at least 14 consecutive days within the first 4-week period applied for, and the worker must not work nor have any employment income, benefits or allowances in all subsequent 4-week periods applied for. As examples, workers ceasing work for reasons related to COVID-19 might mean that they:
- have lost their job;
- are sick;
- are quarantined;
- are taking care of someone who is sick with COVID-19;
- are working parents who must stay home without pay to care for children who are sick or at home because of school and daycare closures; or
- are still employed, but are not receiving income because of disruptions to their work situation due to the COVID-19 pandemic.
The portal to apply for this benefit will be available on April 6, and the first installment of this benefit is expected to be paid to eligible Canadians within 10 days of application. This benefit is intended to fill the gaps by assisting individuals who are not eligible for EI, as well as to provide timely access to income support for EI-eligible Canadians who are facing long processing times due to the sharp increase in EI applications. Those already receiving EI regular and sickness benefits should not apply for this benefit, as their EI benefits will continue as normal (though if their EI benefits end before October 3, 2020, they will be free to apply for this benefit if they are unable to return to work due to COVID-19). Those who have already applied for EI but have an application pending would not need to re-apply. EI-eligible Canadians can continue to apply for EI benefits as normal. Once the full 16 weeks of this benefit have been paid, then those eligible for EI will still be able access EI benefits after that time.
- More Time to File Income Taxes. The CRA will defer the filing due date for the 2019 tax returns of individuals, including certain trusts. For individuals (other than trusts), the return filing due date will be deferred until June 1, 2020. For trusts having a taxation year ending on December 31, 2019, the return filing due date will be deferred until May 1, 2020. The CRA will allow all taxpayers to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after March 18, 2020 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. Further, as a temporary administrative measure, the CRA will recognize electronic signatures in order to reduce the necessity for taxpayers and tax preparers to meet in person during this difficult time.
- Registered Retirement Income Funds (RRIFs). The federal government is reducing required minimum withdrawals from Registered Retirement Income Funds (RRIFs) by 25% for 2020, in recognition of volatile market conditions and their impact on many seniors’ retirement savings. As examples, the minimum withdrawal rate at age 71 is reduced from 5.28% to 3.96%, while the minimum withdrawal rate for those 95 and older is reduced from 20% to 15%.
- Employment Insurance Sickness Benefits. EI sickness benefits provide up to 15 weeks of income replacement to eligible claimants who are unable to work because of illness, injury or quarantine. As of March 15, 2020, the government has waived the one-week waiting period for EI sickness benefits for new claimants who are quarantined, and will not require a medical certificate from those claiming sickness benefits due to quarantine. Those who cannot complete their claim for EI sickness benefits due to quarantine will be allowed to apply later and have their EI claim backdated to cover the period of delay.
- Mortgage Support. The Canada Mortgage and Housing Corporation (CMHC) is now permitting lenders to allow payment deferral on homeowner CMHC-insured mortgage loans, and the federal government is encouraging Canada’s mortgage lenders to provide relief to customers where possible. Canada’s large banks have confirmed that they will provide support on a case-by-case basis to assist customers facing hardships due to recent developments, including up to a 6-month deferral on mortgages and the opportunity for relief on other credit products. Customers should speak with their lenders about their individual circumstances to determine what relief may be available.
- Student Loans. Effective March 30, 2020, the repayment of Canada Student Loans and Canada Apprentice Loans will be automatically suspended until September 30, 2020. No application is required, and interest will not accrue during this time. Students who are currently studying will be able to continue to apply for Canada Student Loans through the normal process.
- Indigenous Community Support Fund. The federal government will provide $305 million in funding for a new distinctions-based Indigenous Community Support Fund to address immediate needs in First Nations, Inuit and Métis Nation communities.
- Additional Funding. $157.5 million in additional support will be provided to the Reaching Home initiative, which is meant to provide for a range of needs for people experiencing homelessness during the crisis. This includes additional beds and physical barriers in shelters for social distancing, and securing accommodation to reduce overcrowding in shelters. A further $50 million in funding is proposed for women’s shelters and sexual assault centres, including facilities in Indigenous communities, to help with their capacity to manage or prevent outbreaks in their facilities. $7.5 million in additional funding will be provided to Kid’s Help Phone for mental health support, and $9 million is being provided to the United Way for local organizations to provide practical support for seniors, including delivery of groceries, medications, and other needed items.