Last Updated: January 18, 2021
As businesses compile their paperwork for this year’s tax season, I’ve put together a detailed and up-to-date list of some new and important things to consider when preparing your Corporation Income Tax Returns for 2020. After all, this year has been unprecedented and it’s added some new requirements for those who benefited from any COVID support.
Note: As stated in this previous blog post, all of this has a huge caveat on it. It’s likely there could be some updates to each of these posts in the coming months, as the pandemic is continuing a lot longer than what was anticipated in the fall of 2020. If you’re reading this now and want to stay up-to-date on all the changes from the CRA, kindly refer to the “last updated” date at the top of this post in the future to make sure you are getting the most updated information.
Corporate and COVID Support
The biggest thing to remember about the government programs that were rolled out during 2020, is that nothing is “FREE”.
CEWS: Canada Emergency Wage Subsidy
- This program is still available.
- The wage subsidy received will need to decrease the amount of salary/wages expense that is recognized by the business. It is a contra-expense. It could also be treated as “other income”.
2020 T4 Slips and Summary
- This year’s T4 slips will have additional codes and information that will need to be included and reported to the CRA.
- This is to assist with the verification of eligibility for CEWS (Canada Emergency Wage Subsidy), CERB (Canada Emergency Response Benefit), CRB (Canada Recovery Benefit) and the CESB (Canada Emergency Student Benefit)
- Please ensure that you give yourself and your bookkeeper additional time to prepare these forms.
- The deadline to submit this information to the Canada Revenue Agency is March 1, 2021 (normally, February 28, 2021, but this year, that day falls on a Sunday).
Employer-Provided Benefits and Allowances
- If your employee worked from home due to the COVID-19 pandemic, they are entitled to claim some of the expenses incurred in order to maintain a home office. The CRA has provided some guidance on how to account for these expenses. If you reimbursed the employees for some of these expenses, some of the reimbursement may be seen as a taxable benefit.
- For example, if your employee required a chair and a new printer for their office. The total cost for this was $600. You paid $600 to the employee. According to the CRA guidance, the first $500 would not be a taxable benefit, but the additional $100, is considered to be a taxable benefit and needs to be included in the employee’s salary for 2020.
- However, there are some costs that the CRA does allow to be reimbursed and not a taxable benefit (cell phone).
- Please see the attached link for more detailed examples and explanations.
CEBA (Canada Emergency Business Account) Loan and The Extension:
- This is the $40,000 loan that was available to businesses and there is also an additional $20,000 loan that can be added onto the initial $40,000.
- Of this loan, only $30,000 needs to be repaid on the $40,000, and only $10,000 of the additional $20,000 is required to be repaid.
- Therefore, up to $20,000 will be forgiven by the government.
- The forgivable amount will need to be included as income in the business’s Corporation Income Tax Return in 2020 (or in the year that the loan was received).
- However, there is a reserve (or deduction) that can be taken to reduce the amount if you can pinpoint expenses that were made during the year that would relate to the forgivable amount.
- Ultimately, this amount will need to be included as income by December 31, 2022, when the amount is due.
- Depending on your tax situation, it may make sense to include this amount into income in 2020 rather than deferring it to a more profitable year.
- Please work with your accountant or tax provider to make sure that the proper election is made on your tax return.
CERS (Canada Emergency Rent Subsidy)
- The initial version of this program was to allow businesses to appeal to their landlords to provide them with some relief on their commercial rent.
- The updated version of this program allows tenants to apply for this subsidy without the involvement of the landlord.
- The funds received from the government in this program are taxable. It should be included as “other income” or as a reduction in the initial rent expense.
If you have any other corporate tax questions that you would like the answers to, please feel free to email me at firstname.lastname@example.org and I’ll be sure to include the answers to them in my next blog post!
Are you a small business owner or self-employed and wanting to improve your bookkeeping habits so that you can get ahead in 2021? Be sure to check out this blog post for my top three recommendations based on conversations I’ve had this year with entrepreneurs.