This topics in this article are changing rapidly as the COVID-19 crisis unfolds. As such, we encourage you to check with Miller Thomson LLP’s Social Impact group for timely updates.
Canada’s federal government continues to announce new economic measures and enrich already announced ones in order to help stabilize the economy during the COVID-19 pandemic. Outlined below are the measures announced thus far by the federal government, along with expansions to existing programs, that are available to assist Canadian charities and non-profit organizations (“NPOs”) facing financial challenges during the pandemic.
Deferred Tax Filings
The Canada Revenue Agency (“CRA”) has extended the deadline to December 31, 2020 for all registered charities to file any Form T3010 that is due between March 18, 2020 and December 31, 2020 in order to give charities more time to complete and submit their annual Registered Charity Information Return.
CRA has also extended the filing deadline for non-charity NPOs. The deadline has specifically been extended to June 1, 2020 for NPOs for the filing of their T2 Corporate Income Tax Return (which must be filed by incorporated NPOs) and their Form T1044 information return (which must be filed by all NPOs, including incorporated ones).
However, in light of the need to maintain certain administrative requirements ahead of the June 1, 2020 extended deadline for the filing of individual income tax and benefit returns, the filing deadline for non-charitable trusts has only been extended to May 1, 2020. The deadline to submit any required objections (including ones dealing with charities compliance issues) to the CRA has also been extended from March 18, 2020 to June 30, 2020. Please note that if your charity or NPO has a disagreement with CRA such that an objection may be necessary, please consult with us as if there is no extension.
Deferral of Sales Tax Remittance and Customs Duty Payments
The Government of Canada has deferred payment for any sales tax remittance and customs payments to CRA and the Canada Border Services Agency, as is applicable, until June 30, 2020. This means that eligible payments of the Goods and Services Tax/Harmonized Sales Tax (“GST/HST”), as well as customs duties owing on their imports are suspended until June 30, 2020. The deferral will apply to GST/HST remittances for:
the February, March and April 2020 reporting periods for monthly filers;
the January 1, 2020 through March 31, 2020 reporting period for quarterly filers; and
for annual filers, the amounts collected and owing for their previous fiscal year and instalments of GST/HST in respect of the filer’s current fiscal year.
Further, there is a suspension on the requirement for GST and customs duty payments for imported goods for amounts owing for March, April and May.
We suggest that charities and NPOs be very cautious in taking advantage of GST/HST deferrals to protect cashflow. Failure to make the payments when they are due eventually becomes a very serious matter.
Suspension of Audits
CRA has also announced that the Charities Directorate has suspended all activities until further notice. Consequently, all audits involving charities have been suspended until the Charities Directorate resumes operations. Likewise, post assessment GST/HST audits involving small and medium-sized businesses (which may include NPOs) and audits involving individual taxpayers have been suspended by the CRA for at least the next four weeks, subject to certain exceptions for high risk or exceptional cases. Similarly, the CTA Appeals Directorate staff who handle charities objections also do not appear to be working existing files.
Charities and NPOs as Employers
Charities and NPOs and their employees are eligible for several new federal benefits designed to ease the effect of the COVID-19 outbreak.
The recently announced Canada Emergency Response Benefit (“CERB”) provides a taxable benefit of $2,000 a month for up to four months for workers who have been impacted by COVID-19. Qualified recipients include workers (including independent contractors) who have lost their job, have been quarantined, have to care for sick family members or have children who require daily care or supervision. Additionally, workers who are still employed but are not receiving income because of disruptions to their work due to COVID-19 also qualify. All Canadians who have ceased working due to COVID-19, whether they are eligible for employment insurance (“EI”) or not, are intended to be able to receive the CERB – the one exception being new workers who have not accumulated $5,000 of income in the last year. The benefit is administered through the CRA and is now open for applications.
Other workers may also qualify for the EI Work Sharing Program, which will provide EI benefits for workers who have agreed to reduce the number of hours they work for up to 76 weeks due to circumstances beyond the control of their employers. Employees of charities and NPOs are not precluded from applying if they meet the specific criteria.
The federal government has further announced a special wage subsidy to prevent lay-offs by employers, including charities and NPOs. The program is called the Canada Emergency Wage Subsidy (“CEWS”) which received Royal Assent on April 11, 2020 as the COVID-19 Emergency Response Act, No. 2 (Canada).
Although initially restricted to smaller businesses, now any eligible employer who saw a decrease of 15% of their revenues due to COVID-19 in March 2020 or sees a decrease of 30% or more in their revenues due to COVID-19 in April, May or June may now apply for the subsidy. NPOs and charities can be considered eligible employers. To measure their revenue loss, the legislation proposes that eligible employers have the flexibility to compare their revenue in March, April, and May 2020 with the corresponding month in 2019 or, alternatively, to an average of their revenue earned in January and February of 2020.
An NPO or a Canadian registered charity other than a school, school board, hospital, health authority, public university or college or First Nation band or Crown corporation may be eligible. It appears that a non-resident NPO with Canadian employees can be eligible. It is not clear if a charity that is not a registered charity (like a non-Canadian charity) but that has Canadian employees is eligible.
The COVID-19 Emergency Response Act, No. 2 (Canada) outlines that NPOs and charities should calculate their revenue for the purposes of the CEWS program in the following manner: Their calculation shall include most forms of revenue, excluding revenues from non-arm’s length persons and revenue from government sources. The NPO or charity can use either of the accrual or cash accounting method for the calculated value which it reports to qualify for the CEWS program, but it must maintain the same accounting method for the duration of its involvement in the program. This said, the legislation details that if an NPO or charity qualifies for an initial period of the CEWS subsidy, then that NPO or charity will automatically qualify for the next period for which the CEWS program is in force. The specific periods will be detailed as the CEWS program is administered by the federal government. This said, the length of the program is currently projected until June 6, 2020.
The CEWS subsidy has increased to 75% of the first $58,700 of eligible remuneration earned by employees (or up to $847 per employee per week) and has been made retroactive to March 15, 2020 as a way of the federal government encouraging eligible employers to rehire laid-off employees in short order. Such employers are eligible for a maximum available subsidy for existing pre-crisis employees (i.e., before March 15, 2020) as well as new ones and the actual subsidy to be received is based on remuneration actually paid to the relevant employee.
The legislation also provides the eligible employers with an additional amount to compensate them for their contributions to the Canada Pension Plan, Employment Insurance, Quebec Pension Plan and Quebec Parental Insurance Plan paid in respect of eligible employees who are on leave with pay due to COVID-19. CRA has additionally announced that employers are not required to comply or remit on existing requirements to pay such remittances to the federal government until further notice.
The Government of Canada is urging (but not requiring) Canadian employers to make up the remaining 25% of employee wages not covered by the CEWS subsidy and has made it clear that there is no upper limit on the number of employees which it may claim the CEWS subsidy for.
The federal government has warned of serious consequences for employers who attempt to take advantage of the program. The legislation codified this message. Employers who receive CEWS payments, but are found to not qualify at a later date will be required to repay any amounts which they receive. The legislation also includes a 25% penalty of the value of CEWS received by an employer if the employer is found to have engaged in transactions that artificially reduce the employer’s revenue in order to qualify for the subsidy. Furthermore, persons making, or participating in making, a false or deceptive statement could be prosecuted with a summary or indictable offence under current sections of the Income Tax Act (Canada). Anyone found guilty could be sentenced to prison for up to five years. The consequences in the COVID-19 Emergency Response Act (Canada) are indeed serious.
CEWS will be very helpful for Canadian charities and NPOs. That said it remains a blunt policy instrument. Some charities and NPOs will find themselves eligible for the program and may receive very substantial wage subsidies without any real solvency problems. Others will find themselves ineligible despite real possibility of insolvency.
Extending Access to Credit
The Government of Canada also established a Business Credit Availability Program to provide $65 billion of additional support. The new Canada Emergency Business Account is a part of this program and is designed to provide interest-free loans of up to $40,000 to qualified organizations, which include not-for-profits, to help cover their operating costs during a period where revenues have been temporarily reduced. A not-for-profit organization’s ability to qualify relates to the payroll they paid in 2019.
Earmarked Funding for Shelters and Indigenous Communities
Certain charities and NPOs may qualify for federal funding that has been earmarked for organizations serving homeless and other at-risk populations. The recently announced Providing the Reaching Home initiative has pledged $157.5 million to support Canada’s homeless population during the COVID-19 pandemic. Potential uses of the fund include the purchasing of additional beds and physical barriers to help maintain social distancing and reduce overcrowding in homeless shelters. Another $50 million in funding has also been reserved for women’s shelters and sexual assault centres, including organizations serving Indigenous communities, to help mitigate potential outbreaks in their facilities. Indigenous communities are also set to receive $305 million from the Indigenous Community Support Fund to help address immediate concerns related to COVID-19 in First Nations, Inuit and Metis communities. Each of these funds will be implemented by April 2020, subject to receiving Royal Assent.