COVID-19 tax update: CEWS, employee expenses and benefits, deadline extensions

Through our ongoing discussions with the Canada Revenue Agency (CRA) and the Department of Finance Canada about COVID-19 tax relief, we continue to learn about key developments that are important for our members. In this blog, we deliver new information on:

• CEWS eligibility requirements and new FAQs posted by CRA
• additional income tax deadline extensions
• other top-priority COVID-19 tax issues that we have asked the CRA to address

Update on the CEWS

Partnerships and eligibility requirements

The CEWS working group set up jointly by CPA Canada and the Canadian Tax Foundation (CTF) continues to identify priority issues related to the CEWS and raise them with the CRA. In a recent teleconference, the CRA told the working group that it is looking into most of these issues.

A key concern is that certain partnership structures — such as public/private partnerships and partnerships with pension funds or Indigenous businesses as partners — do not meet the CEWS eligible entity definition. We discussed these issues and structures with Finance Canada, and officials seem receptive to our concerns.

As noted on our federal government COVID-19 tax updates page, Indigenous Services Canada announced in an email to stakeholders that the CEWS eligible entity definition “will apply to corporations carrying on a business that are at least 90 per cent owned by one or more Indigenous governments, as well as partnerships carrying on a business where the partners are Indigenous governments, eligible Indigenous government-owned corporations, and other eligible employers.”

Unfortunately, official word is yet to come from Finance Canada or the CRA on this position, although Finance Canada did acknowledge the email. We hope to see more details released soon on all of these partnership issues.

Updated FAQs

On May 5, 2020, the CRA released a revised FAQ on the CEWS with more details. Among other things, the FAQ:

• confirms that investment income, such as interest and dividends, should be included in the revenue test (question 6-1)
• discusses government assistance, appearing to indicate that most COVID-19-related amounts will be considered as extraordinary items for CEWS purposes (question 6-2)
• provides more information on affiliated groups of eligible entities, and the CRA states where members of an affiliated group elect to calculate qualifying revenue on a consolidated basis (i.e. under subparagraph 125.7(4)(b)), the election must be applied by the entity and all affiliated entities to be valid (questions 10 and 10-1)
• confirms that the rules in paragraphs 125.7(4)(a) to (d) do not have to be applied for all claim periods if they are used in one claim period (question 12-1)
• provides additional commentary on the impact of rehiring employees in receipt of the Canada Emergency Response Benefit (question 14-1)
• discusses how to treat tips as remuneration for the CEWS (question 17-1)
• delivers some bad news for owner-managers in that dividends paid to owner-managers are not remuneration for CEWS purposes and if no remuneration was paid during the baseline period from January 1, 2020 to March 15, 2020 to an owner-manager, no amount can be claimed for that owner-manager (question 17-2)

See the revised FAQ for details.

More income tax deadlines extended

As we noted in our previous tax blog, more and more members are concerned about meeting the upcoming tax filing deadlines for self-employed individuals on June 15, and for corporations with November 30, 2019 and December 31, 2019 year-ends on June 1 and June 30 respectively.

We continue to discuss this issue with the CRA and also raised the matter when we appeared before the House of Commons Finance Committee on May 1. We understand that you want an answer as soon as possible so that you can plan your work for the next few months. Overall, we believe that further extensions are possible, and we hope they will be announced soon.

Update on other COVID-19-related tax issues

Similar to our list of key priorities regarding the CEWS, CPA Canada and the CTF have shared with the federal government a list of other COVID-19-related tax issues we’ve heard of from our members. We summarize some of these other top priorities below. See our issues list for more details.

Reimbursements and allowances:

The CRA has provided guidance on employer payments for employees’ home computer equipment purchases, but questions remain about the tax treatment of other reimbursements and allowances. These include payments to help cover home office costs as well as for expenses incurred for the safety of employees who must work outside of their home (e.g. private transportation, meals).

Automobile and parking benefits:

Some employers may pay for parking for employees who, due to COVID-19, do not have normal access to their parking spot or cannot travel to their normal place of employment. We asked the CRA whether employers should record a taxable benefit for these payments.

Similarly, where an employer has provided an automobile to an employee, the personal-use portion is normally considered to be a taxable benefit to the employee. During the mandated closure of most businesses, the employee’s business use is likely nominal, which could disqualify employees from claiming the prorated standby charge benefit. We have asked the CRA to consider relief from this outcome.

Home office expenses:

With so many Canadians newly working at home due to workplace closures, we have encouraged the CRA to streamline Form T2200, Declaration of Conditions of Employment and reduce the associated administrative burden of home office expense claims. We also asked the CRA to consider taking a more flexible approach to employment contract conditions.

Finally, we asked the CRA to simplify their administrative policy for home office expenses incurred as a result of mandated work from home measures. For example, we suggested the CRA look into a simplified approach implemented in Australia that provides employees the option to claim a deduction for home office expenses based on a fixed rate per hours worked or by determining actual costs incurred.

Electronic signatures, e-filing of other forms, authorizing third parties:

Following on the federal government’s announcement that it would allow electronic signatures for T183 and some other forms, we asked the CRA to consider extending this policy to more forms. We also asked the CRA to consider enabling other options to electronically file forms and other correspondence beyond its current online services. Finally, we asked the CRA for an update on third-party authorizations and the best way to file them.

Mind and management and corporate residence:

Current travel restrictions are creating issues for maintaining mind and management outside Canada for foreign subsidiaries as their management teams in Canada may be unable to travel to other countries. We have encouraged the CRA to provide guidance on this matter, as clarity is needed for both tax compliance and financial statement disclosure (i.e. tax provisions) purposes.

Other priority issues:

Other top issues we have identified with the CRA and look forward to discussing further include:

• timing of Section 116 and T2062 Certificate of Compliance Requests
• actions with statutory timelines or deadlines other than tax payments and tax return filings (e.g. mutual fund trust status issues and replacement property rules)
• accelerating loss carry back refunds to help taxpayers with cash flow issues
• Part XIII compliance issues for fund managers

Other developments

Check out our federal government COVID-19 tax updates page for information on these and other developments, and check back regularly for the latest updates on:

• the CRA’s revised Represent a Client confirmation page, which addresses professional concerns by eliminating the need for practitioners to provide any level of assurance or opinion
• the CRA’s work to correct the offsetting of the one-time GST credit against 2019 tax liabilities issue through letters and refunds for affected recipients (similar issues arose with the Ontario Trillium Benefit but won’t be corrected until after June 2020)
• the CRA’s update to business stakeholders on the scientific research and experimental development (SR&ED) tax credit program, highlighting its objectives of providing refunds as soon as possible, prioritizing the resolution of objections inventories related to SR&ED and other critical programs, and updates on taxpayer SRE&ED communications and audits

NOTE: The commentary function of this page has been temporarily closed. Unfortunately, because of the volume of feedback regarding recently announced COVID-19 tax measures, we do not have the capacity to respond to individual inquiries. We strongly encourage you to visit our Federal Government COVID-19 Tax Updates page for information.