Tax update – response to COVID-19
On March 24, 2020, the Government of Canada introduced legislation to implement its economic response plan to COVID-19, namely, the COVID-19 Emergency Response Act ( “Emergency Response Act”). This legislation received Royal Assent on March 25, 2020.
While the Emergency Response Act contains many important measures, in this article we will highlight some of the details regarding the temporary wage subsidy. Further, we wish to provide an update on notable administrative concessions and operational changes announced by the Canada Revenue Agency (“CRA”) and an update on cancellations and practice directions announced by the Chief Justice of the Tax Court of Canada (“TCC”).
Emergency Response Act
The Emergency Response Act clarified some of the details regarding the temporary wage subsidy. This subsidy applies to remittances made to the CRA, as representative of the Receiver General, under the Income Tax Act. Eligible employers are deemed to have remitted an amount equal to a prescribed percentage (previously announced to be 10%), of salary, wages or other remuneration paid to individuals employed in Canada from March 18, 2020 until June 19, 2020, up to a prescribed maximum per employee (previously announced to be $1,375) and a prescribed maximum per employer (previously announced to be $25,000). The previously announced percentages and maximums were not confirmed in the Emergency Response Act, presumably to provide the Government of Canada with flexibility to modify this percentage and these amounts by regulation moving forward.
Further, the Emergency Response Act clarified some of the details about eligibility of for-profit corporations for the temporary wage subsidy. Canadian-controlled private corporations (“CCPCs”) that employ individuals in Canada are eligible for this subsidy if their business limit (calculated without taken into consideration the grind for investment income) in their last taxation year that ended prior to March 18, 2020, was greater than nil. Recall that the business limit is a factor in determining whether a CCPC is eligible for the small business deduction. Essentially, if a CCPC was eligible for the small business deduction in its last taxation year or would otherwise have been eligible but for the effects of the investment income grind or the specified corporate income and specified partnership income rules, then it is eligible for the temporary wage subsidy.
Business limit is proxy for the small businesses that the Federal government ostensibly wishes to benefit from this temporary wage subsidy. However, associated groups of CCPCs (e.g. a group of companies owned by one family) often assign all of the available business limit to one CCPC within the group, leaving the others with a business limit of nil. In these situations, it appears as though only one company within the group will benefit from the temporary wage subsidy.
Aside from qualifying CCPCs, other employers of individuals in Canada that qualify for the temporary wage subsidy are:
- Individuals (other than trusts);
- Non-profits organizations;
- Registered charities; and
- Partnerships all of the members of which are:
- CCPCs who qualify for the subsidy;
- Individuals (other than trusts);
- Registered charities; and
- Partnerships who qualify for the subsidy.
The filing deadline for a charity’s Registered Charity Information Returns (T3010) that would otherwise be due between March 18, 2020 and December 31, 2020, has been extended to December 31, 2020.
Additionally, the CRA’s Charities Directorate has suspended all operations until further notice, including its call centre and its registration and audit activities.
For the foreseeable future, the CRA will not be processing objections filed by individuals and businesses, other than objections relating to Canadians’ entitlement to benefits and credits.
Collection activities by the CRA on new debts (which presumably means tax debts incurred after the date of announcement on March 19, 2020) will be suspended until further notice.
Flexible payment arrangements will be available from the CRA for tax debts (presumably on a case-by-case basis for existing and new debts). Payment arrangements are also available on a case-by-case basis for child and family benefit overpayments, Canada Student Loans, or other government program overpayments.
CRA collections staff will address “pre-existing situations” (presumably existing debts and payment arrangements) on a case-by-case basis to prevent financial hardship.
The CRA will not contact “small or medium businesses” to initiate post-assessment GST/HST or income tax audits until, by our math, April 15, 2020.
Further, the CRA has indefinitely suspended audit interaction with the vast majority of taxpayers. The exceptions appear to be in situations where the legal deadline to reassess a tax return is approaching and in “high risk” GST/HST refund claims that require some contact before they can be paid out.
Tax Court of Canada
The Chief Justice of the TCC announced that the TCC and its Registry offices across Canada are closed until further notice.
In addition to previously cancelled sittings and conference calls, all TCC sittings and conference calls scheduled from March 30, 2020 until May 1, 2020 are cancelled. Sittings scheduled after May 1, 2020 have not been cancelled, but the Chief Justice of the TCC will reassess on April 14, 2020.
The Chief Justice of the TCC has suspended certain timelines. In particular, the period beginning on March 16, 2020 and ending on May 1, 2020, will be excluded from the computation of time under:
- the Tax Court of Canada Rules (General Procedure);
- all other Rules made under the Tax Court of Canada Act governing the conduct of matters that, pursuant to section 12 of the Tax Court of Canada Act, are under the jurisdiction of the TCC; or
- an Order or Direction of the TCC.
Other statutory deadlines affecting proceedings in the TCC, like the timelines associated with applying to the TCC for an extension of time to file a notice of objection to an assessment, continue to apply. Where a party is facing such a statutory deadline, it may file documents with the TCC by fax or electronically using the TCC’s on-line filing system, albeit these documents will not be processed until the TCC’s operations resume. For the time being, these parties are exempt from the requirement to file paper copies.
Otherwise, the Chief Justice of the TCC has indicated that:
… where there are no statutory deadlines, parties are asked to wait and file other documents and requests once the [TCC] resumes its operations. Given the exceptional circumstances, the [TCC] will be, on a case by case basis, as flexible as reasonably possible in dealing with all requests.
This article is provided for general information only. If you have any questions about the above, please contact a member of our Tax Group.
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