Tax Tip Thursday

Well, we are closing in on the CEBA repayment!

It has changed a little bit, but not much. So I hope everyone who had a loan was able to put some money away for the repayment. I know many people actually repaid the loan already. Not sure why, but I guess they wanted to get it off their books early.

Businesses borrowed almost $50 billion dollars through the CEBA program during COVID-19. That was almost 1 million businesses! Unfortunately, according to the Canadian Federation of Independent Business (CFIB), many will struggle to meet the deadline to repay and take advantage of some loan forgiveness. That deadline was recently extended, but only by a few weeks to Jan. 18, 2024, from Dec. 31, 2023.

“Only 50 percent of small business owners are back to normal levels of sales [compared with] pre-pandemic levels,”

– Dan Kelly, the CFIB’s president, chief executive officer and chair.

And this will cause some businesses a great deal of grief in the new year.

What has changed

The loan was due December 31, 2023. If paid back on that date, you would be forgiven either $10k or $20k depending on how much you borrowed.

If you are not able to make the full repayment of the balance by that date, then the balance of the loan amount would roll over into a 3-year term loan with the bank that lent you the money. That date has changed from December 31, 2023, to January 18, 2024. Not much time, but it’s something. It gives you a few weeks after the holidays, right?. However; if you have submitted a loan application with the bank that issued the loan, and it is in process on January 18, 2024, you have until March 28 to close the loan and pay back the loan amount less the forgiven portion.

Keep in mind that the interest starts on Jan. 19 at an annual rate of 5 percent with any outstanding balance (full amount) due on Dec. 31, 2026 if you are not successful with the loan application.

Loan Arrangements

So, if you have not been able to save the money or make alternative loan arrangements, get to your bank and start the process!

It is likely very much in your favour to finance $40k at a higher rate than to have to finance $60k at 5% for 3 years. When you file the application, you can ask them what the payments will be in each scenario and decide for yourself.

As I have been saying all along, you need to have a plan to repay the money.

As a basic example only, borrowing $60,000 versus borrowing $40,000 has a significantly different impact on a business’s cash flow. While $60,000 at 5 percent amortized to the end of 2026 translates to a loan payment of about $1,800 a month, $40,000 at 7.5 percent works out to about $1,250 a month.

So if you do not have the money, start the process to get it sorted out sooner rather than later.

Accounting and Tax implications

Please be sure to keep in mind that this was a business loan and needs to be in your business books.

Any interest that you do end up paying on the loan will be tax deductible.

The forgiveable portion of the loan was (or should have been) recorded in your books as income already.

If you are unable to pay the loan back (less the forgivable portion), that $10k or $20k that could have been forgiven will now be a tax deduction along with the interest on the loan.

Unfortunately that will not be until your 2024 tax return.

More Deferrals Possible

The CFIB is still fighting to have the loan repayment program deferred for another year, but do not count on that!

If you need some assistance coming up with a budget or a strategy, please Make an Appointment 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.