Finance & Taxation | National | Store Operations

Analysis of Canada’s COVID-19 Economic Response Plan

UPDATED March 28, 2020

With the multitude of changes and adjustments being made governments decisions regarding COVID-19, RCC is making every effort to keep members informed with relevant, up-to-date information.

Below is a summary and analysis of the federal actions announced and their potential impacts for retailers.

Temporary restriction of non-essential travel across US-Canada border

The Prime Minister announced that travel for recreation and tourism across the US-Canada border is no longer allowed, but essential travel will continue to preserve supply chains in both countries and trucking will not be affected. Canadians and Americans who cross the border daily for work purposes are not affected by these restrictions. These restrictions on “non-essential” travel across the border went into effect on March 21, 2020 and will remain in place for at least 30 days.

Tax Filing Changes for Businesses

Income Tax Payment

The Canada Revenue Agency will allow all businesses to defer the payment of any income tax amounts that become owing on or after the date of the announcement and before September 2020 until after August 31, 2020. This relief would apply to tax balances due, as well as installments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.

Goods and Services Tax/Harmonized Sales Tax

The Federal government is deferring GST/HST remittances to June 30, 2020 to support Canadian businesses in the current extraordinary circumstances. The Minister of National Revenue will extend until June 30, 2020 the time that:

  • Monthly filers have to remit amounts collected for February, March and April 2020 reporting periods;
  • Quarterly filers have to remit amounts collected for January 1, 2020 through March 31, 2020 reporting period; and
  • Annual filers, whose GST/HST return or instalment are due in March, April or May 2020, have to remit amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year.

The Canada Revenue Agency 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, and audit interactions will be temporarily suspended for “the vast majority of businesses.”

Deferral of Customs Duty and Sales Tax for Importers

Imported goods by businesses are generally subject to the GST, at a rate of 5 per cent, as well as applicable customs duties, which vary by product and country of origin. While the vast majority of imports enter Canada duty-free, some tariffs remain, especially on consumer goods.

Typically, payments owing for customs duties and the GST on imports are due before the first day of the month following the month in which the Statements of Accounts are issued. However, payment deadlines for statements of accounts for March, April, and May are being deferred to June 30, 2020.

Canada Emergency Response Benefit (CERB)

The new CERB replaces the previously announced Emergency Support Benefit and the Emergency Care Benefit.

The CERB will provide a taxable benefit of $2,000 a month for up to 4 months to:

  • workers who must stop working due to COVID-19 and do not have access to paid leave or other income support.
  • workers who are sick, quarantined, or taking care of someone who is sick with COVID-19.
  • working parents who must stay home without pay to care for children that are sick or need additional care because of school and daycare closures.
  • workers who still have their employment but are not being paid because there is currently not sufficient work and their employer has asked them not to come to work.
  • wage earners and self-employed individuals, including contract workers, who would not otherwise be eligible for EI.

Canadians would begin to receive their CERB payments within 10 days of application. The CERB would be paid every four weeks and be available from March 15, 2020 until October 3, 2020. We anticipate applications will open on April 6, 2020.

Temporary Wage Subsidy

To encourage employers to keep employees on their payrolls, the government is providing a 75 per cent wage subsidy for qualifying businesses, for up to 3 months, retroactive to March 15, 2020. This will help businesses keep and return workers to the payroll.

More details on eligibility criteria will be shared before the end of the month.

The New Canada Emergency Business Account

The Canada Emergency Business Account is a new loan program, that will be implemented rapidly by eligible financial institutions in cooperation with Export Development Canada (EDC).

This $25 billion program will provide interest-free loans of up to $40,000 to small businesses and not-for-profits, to help cover their operating costs during a period where their revenues have been temporarily reduced.

To qualify, these organizations will need to demonstrate they paid between $50,000 to $1 million in total payroll in 2019. Repaying the balance of the loan on or before December 31, 2022 will result in loan forgiveness of 25 per cent (up to $10,000).

Additional details on accessing this program will be available soon.

Offering a guarantee on loans

Export Development Canada is supporting businesses by offering their bank a guarantee on loans of up to $5 million to ensure companies can access more cash immediately.

For more details, contact your financial institution.

Liquidity and Business Access to Credit

The government reiterated the Business Credit Availability Program (BCAP) will allow the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) to provide more than $10 billion of additional support, largely targeted to small and medium-sized businesses. The government says BDC and EDC are cooperating with private sector lenders to coordinate on credit solutions for individual businesses, including in sectors such as oil and gas, air transportation and tourism, but did not provide more detail.

Near term credit available to farmers and the agri-food sector is to be boosted through Farm Credit Canada, but again, more specific details were not provided.

The Office of the Superintendent of Financial Institutions (OSFI) announced it is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately, allowing Canada’s large banks to inject $300 billion of additional lending into the economy.

To increase financial market liquidity, the government will purchase up to $50 billion of insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC). Details of the terms of the purchase operations are to be provided to lenders by CMHC later this week.

Further, the Bank of Canada has announced that it will adjust its market liquidity operations to maintain market functioning and credit availability. It will broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the Standing Liquidity Facility, except for the non-mortgage loan portfolio. This will provide support to funding conditions for financial institutions by providing a backstop to regular private funding.

The Bank also announced that it is ready to proactively support to the Canada Mortgage Bond (CMB) market so that this important funding market continues to function well. This would include, as required, purchases of CMBs in the secondary market.

Other Supports for Individuals and Families

Prior to the government’s announcement, Canada’s six large banks confirmed they will offer support including up to a 6-month payment deferral for mortgages, and the opportunity for relief on other credit products. They advise their customers to talk to their bank to learn more.

The Government is proposing to provide a one-time special payment by early May 2020 through the Goods and Services Tax credit (GSTC) to assist more than 12 million Canadian families. The average boost to income for those benefitting from this measure is expected to be close to $400 for single individuals and close to $600 for couples, investing $5.5 billion into the economy.

The Government is also proposing to increase the maximum annual Canada Child Benefit (CCB) payment amounts, only for the 2019-20 benefit year, by $300 per child. The overall increase for families receiving CCB will be approximately $550 on average; these families will receive an extra $300 per child as part of their May payment. This is estimated to provide $2 billion in extra support.

Together, it’s estimated the proposed 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.

The government is also placing a six-month interest-free moratorium on the repayment of Canada Student Loans and is reducing required minimum withdrawals from Registered Retirement Income Funds (RRIFs) by 25% for 2020, in recognition of the impact on seniors’ retirement savings.

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