HUNTSVILLE, ONT. -- 2020 has been a year many small business owners will soon want to forget however, not so fast, we still have the tax season to contend with.
Taxes for small business owners can be challenging at the best of times, but with business revenues crushed, expenses escalating and the government aid, a lifeline for many, didn't come without strings attached. Tax filing for the 2020 taxation year has likely gotten a little more complicated.
Employer tax obligations will be higher for those who benefited from any of the COVID emergency relief programs. This is because all subsidies received will be treated as company revenue for tax purposes. This also includes the Canada Emergency Business Account benefit, which is a loan, but the forgivable portion will have to be included in the year the loan was received.
Here are a few more examples of government aid that needs to be accounted for:
1) The Canada Emergency Wage Subsidy (CEWS) is a taxable benefit so it is important to monitor how much money you have taken advantage of. This plan was put into place to cover part of your employees wages going back to March 15 and designed in part to prevent layoffs so in a perfect world businesses can hit the ground running once the pandemic is under control.
2) The Canada Emergency Rent Subsidy (CERS) is a taxable benefit where there was a significant drop in revenue supported by documentation. The maximum amount remains at 40 per cent of eligible expenses with an additional 25 per cent provided by Lockdown Support rules when closures were forced due to health restrictions.
3) The Canada Emergency Commercial Rent Assistance (CECRA) like the CERS is taxable and must be included as taxable income. When it comes right down to it, the government wants you to think of these programs as another source of income.
4) The Canada Recovery Benefit is similar to the CERB; however, it was put into place for those who were not eligible for EI, for example the self-employed, but is also considered to be taxable income.
5) The CFIB noted employers with employees who worked from home may also have to provide home office expense authorizations so their employees can get a deduction on their taxes. But the good news here is that CRA did provide a flat fee option for taxpayers working from home to claim $2 per day up to a maximum of $400 without requiring any documentation from their employer.
I reached out to Corinne Pohlmann, senior vice-president, National Affairs at the Canadian Federation of Independent Business. She confirmed they have already received many questions about these tax obligations and have helped where they can, adding, "we are calling on CRA for some leniency and flexibility for taxpayers and employers when it comes to filing deadlines given the complexity of what is required and the ongoing challenges being faced by small businesses due to the pandemic."
The warning bells are ringing. No doubt the subsidies and assistance programs were needed and were put into place to support small business through the pandemic, but it wasn't a free ride, there will still be taxes owing.
H&R Block tax expert Lisa Gittens suggests, "if businesses haven't been preparing for these taxes, now is the time to put a plan in place, or start working with a tax expert to help develop a plan for this tax season.
For many small business owners, sadly, the clock is ticking.
