Tax Tip Thursday

There are some changes coming to CEBA loans that I think are important for people to know about.

A lot of people were lucky enough to qualify for the CEBA loan in 2020. The original terms were:

• A $40k loan of which only $30k would be repayable and $10k forgiven (per repayment terms)
• A 2nd loan became available for an additional $20k of which only $10k would be repayable (per repayment terms)
• If you took advantage of both, you will have received $60k in total of which $40k will be repayable and $20k forgivable (per repayment terms).

Here are the details

All applicants that meet CEBA eligibility criteria will have the following repayment terms:

Interest:

• 0% per annum interest until December 31, 2023
• 5% per annum interest starting on January 1, 2024; interest payment frequency to be determined by your financial institution

Repayments & Maturity:

• No principal repayment is required before December 31, 2023
• If the loan remains outstanding after December 31, 2023, only interest payments are required until the full principal is due on December 31, 2025

Debt Forgiveness:

• If the outstanding principal, other than the amount of potential debt forgiveness, is repaid by December 31, 2023, the remaining principal amount will be forgiven, provided that no default under the loan has occurred

There has been no confirmation from the banks as to what “Meeting the CEBA eligibility criteria” means, until now!

I have official confirmation that the CEBA loan repayment deadline has been EXTENDED to Dec 31, 2023. This was announced by the government on Jan 12, 2022, and it is now confirmed by the Royal Bank at least.

Clients will begin receiving notifications by email on Oct 17 to officially advise them of the repayment date to qualify for the loan forgiveness (Dec 31, 2023) and the interest-free period end date (Jan 1, 2024).

The government has done a post-loan review of all CEBA loans. Only a very small percentage of clients may not have been eligible for the loan forgiveness (e.g., loan defaults) and will receive email communication from RBC on behalf of the Government of Canada, starting October 13.

So, what does all this mean to you?

Assuming you will meet the eligibility criteria, you now have 14 months until the $40k payment is due. That works out to approximately $2850 a month if you want to start saving.

If you can find a way to pull the money together, you should try. If you are not able to come up with the $40k, you will then owe $60k. It is looking like the interest rate will be very good compared to what you will be able to get at that time, but you will owe and pay interest on the entire $60k.

There is a double-edged sword if you do find yourself in that position.

1. you will only need to make interest payments for the next 2 years
2. BUT, as of Dec 31, 2025, you will owe the full $60k.

There is some other good news from a tax perspective. Because the original forgivable amount ($20k) was to be taken into income at the time of the loans (if your taxes were prepared correctly), you should have a $20k deduction effective January 1, 2024. There has been no specific guidance on this from the CRA, but based on the normal income inclusion rules, that will be the outcome. If you did NOT include the forgivable portion of the loan into income at the time, there will definitely NOT be a deduction in 2024.

Call Us!

You will save big if you can get ahead of this and pay up the $40,000 within the 14 months they’re giving you. We can help you with your taxes and your books to make sure you can come up with the money on time! Don’t sleep on this one. Call us today!

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.