Canada Emergency Business Account (“CEBA”) – $10,000 Free

As part of the COVID-19 Economic Response Plan, the CEBA will provide interest-free loans of up to $40,000 to small business and non-for-profits to help cover their operating costs. Furthermore, there will be loan forgiveness of 25%, (up to $10,000) if the balance of the loan is repaid on or before December 31, 2022.

Eligibility Requirements:

  • A Canadian operating business in operation as of March 1, 2020.
  • Has a federal tax registration, i.e. active business number with Canada Revenue Agency.
  • Total salary paid in 2019 calendar year was between $20,000 to $1.5 million.
  • Has an active business chequing/operating account with the financial institution and the account was opened on or prior to March 1, 2020 and was not in arrears on existing borrowing facilities.
  • The business must acknowledge its intention to continue to operate its business or to resume operations.
  • The business must agree willing to participate in post-funding surveys conducted by the Government agency.

How to Apply?

  • By applying to it on-line through their primary business financial institution.

Recordkeeping Best Practices

As the funds from the loan are intended for the business to pay non-deferrable operating expenses, such as rent, utilities, insurance, property tax, payroll, supplies, and other operating expenses, the Government of Canada clearly indicated that the funds may NOT be used to fund any payments or expenses such as prepayment or refinancing of existing indebtedness, payment of dividends, distributions and increases in management compensation. Therefore, business owners whom received this support should set up the accounting system with a separate account(s) that track the inflow and outflow of funds from this loan and have it ready in case the Government would like to verify the usage of support funds.

Sample illustration:

1) When received the interest free loan
Accounts Description Dr. Cr.
Bank loan from CEBA        40,000
CEBA – Loan account CEBA loan deposited to bank        40,000
2) Use of fund
Accounts Description Dr. Cr.
CEBA Expenses account Salary (non owners)        30,750
Employee benefit (i.e. CPP/EI/others)          2,750
Rent          4,000
Office supplies          1,500
Advertising              750
Insurance – business              250
Bank        40,000
3) Repayment of CEBA Loan
Accounts Description Dr. Cr.
CEBA – Loan account repayment of loan        40,000
CEBA – Forgiveness Taxable income of CEBA forgiven amount        10,000
Bank        30,000

 

This article is intended for general information purposes only and does not constitute professional advice.  Income tax law and regulation change frequently and the content on this article may no longer reflect the current state of the law. If you have any specific questions, you should consult a professional services advisor or email leo@awkcpa.com or alfred@awkcpa.com for further advice.