On March 18, 2020, Canada’s federal government announced a new set of economic measures to help stabilize the economy during the COVID-19 pandemic. These new measures are in addition to others previously announced by the Canada Revenue Agency (CRA) and various courts across Canada.
Labeled the Government of Canada’s COVID-19 Economic Response Plan, the government introduced many measures, providing up to $27 billion in direct support to Canadian workers and businesses. Many of the programs will be delivered through Canada’s tax and social services systems. Below is a summary of some of the more relevant considerations from a tax perspective.
Extension of Deadline for Filing Income Tax Returns
The Canada Revenue Agency (CRA) announced an extension of the tax return filing deadline for most Canadian taxpayers and trusts. Specifically, the 2019 tax return filing deadline for individuals (other than trusts) will be deferred until June 1, 2020. For trusts with a taxation year ending on December 31, 2019, the return filing due date will be deferred until May 1, 2020. While no tax-filing extensions were granted for corporations, certain delays in remitting corporate income taxes have been granted as outlined below.
The CRA did not announce any extensions for the filing of partnership information returns, issuance of tax slips or filing GST/HST returns.
Deferral in Remittance of Certain Income Tax Obligations
Individuals and trusts may defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after March 18, 2020, and before September 2020. This will apply to 2019 tax balances due and 2020 instalments under Part I of the Income Tax Act (Canada). Further, no interest or penalties will accumulate on these amounts during this period.
In addition, the CRA is allowing all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after March 18, 2020, and before September 2020, under Part I of the Income Tax Act (Canada). Further, no interest or penalties will accumulate on these amounts during this period.
No delay was announced for the remittance of GST/HST, payroll taxes or other tax obligations.
Administration of the Tax System
The CRA also announced a number of measures with respect to the administration of the tax system during the pandemic:
- For the next four weeks, the CRA will refrain from contacting small or medium-sized businesses to initiate post-assessment GST/HST or income tax audits. For the vast majority of businesses (although the government did not specify which businesses), the CRA will temporarily suspend audit interaction with taxpayers and representatives. No announcement was made as to whether a similar suspension would apply in respect of individual taxpayers.
- The CRA’s Liaison Officer will now be available by phone in order to advise businesses of the impact these changes may have on them.
- The CRA will also adapt its Outreach Program, which provides support to individuals to better understand their tax obligations, and the benefits and credits to which they are entitled.
- The CRA will recognize electronic signatures as having met the signature requirements of the Income Tax Act (Canada), as a temporary administrative measure. This relief applies to authorization forms T183 or T183CORP.
- The CRA may introduce additional efforts to encourage individuals to file their tax and benefit returns electronically in response to the CRA’s expectation that the provision of services provided under the Community Volunteer Income Tax Program will be significantly reduced or cancelled.
Helping Businesses Keep their Workers
The government proposed providing corporations eligible for the small business deduction, non-profit organizations and charities a temporary three-month wage subsidy equal to 10% of remuneration paid during that period, up to a maximum of $1,375 per employee and $25,000 per employer. Eligible employers will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration, presumably in an amount equal to the subsidy. As is the case with most government assistance, these subsidies may represent taxable income to the corporation in the year of receipt.
Additional Support for Canadian Businesses
The Canada Account, administered by Export Development Canada, is used by the government to support exporters when deemed to be in the national interest, will be used to provide additional support to Canadian companies through loans, guarantees or insurance policies during the COVID-19 outbreak.
The Business Development Bank of Canada and Export Development Canada will provide more than $10 billion of additional credit support to small and medium-sized businesses. In cooperation with private sector lenders, credit solutions will be available for individual businesses, including in the oil and gas, air transportation and tourism sectors. Through Farm Credit Canada, the near-term credit available to farmers and the agri-food sector will be increased.
The Office of the Superintendent of Financial Institutions is lowering the Domestic Stability Buffer by 1.25% of risk-weighted assets, effective immediately, to allow Canada’s banks to inject $300 billion of additional lending into the economy.
The Bank of Canada reduced the interest rate to 0.75% amid negative shocks to Canada’s economy arising from the COVID-19 outbreak and the recent sharp drop in oil prices.
Current Status of Canadian Courts
Tax Court of Canada
On March 16, 2020, the Tax Court of Canada issued a Practice Directive and Order cancelling all its judicial activities for the weeks of March 16, 2020, and March 23, 2020, up to and including March 27, 2020.
The Court has dispensed with the compliance of any Rule of the Tax Court of Canada until March 30, 2020, or until any further direction is given. The Court also extended or abridged all timelines prescribed by the Tax Court of Canada Rules from March 16, 2020, to March 30, 2020. Lastly, the Court closed all of its offices from March 16, 2020, to March 30, 2020, or until otherwise ordered by the Court.
Federal Court of Canada
On March 17, 2020, the Federal Court issued a Practice Directive and Order cancelling all hearings scheduled to be heard between now and April 17, 2020. This includes hearings that were to be heard by way of telephone conference. However, this does not include “urgent” and “exceptional” hearings. Matters where hardship or substantial financial consequences are likely to result from delay may be considered urgent. These matters will be heard by telephone conference.
All timelines under Orders and Directions of the Court made prior to March 18, 2020, as well as under the Federal Courts Rules, and subsection 18.1(2) of the Federal Courts Act are being suspended until April 17, 2020. All other statutory filing deadlines continue to apply. Parties will be able to request an extension of time for deadlines set out in other applicable statutes if they are unable to meet the filing deadlines in light of current circumstances. However, they should refrain from doing so until after the suspension period.
In terms of rescheduling matters, parties are required to provide the Judicial Administrator with their mutual dates of non-availability for the rescheduling of hearings that have been adjourned, no sooner than May 1, 2020, and no later than the close of business on May 15, 2020.
Federal Court of Appeal
Similar to the Federal Court, the Federal Court of Appeal is adjourning all hearings scheduled to be heard between now and April 17, 2020, with the exception of urgent matters that will be heard by teleconference. The Judicial Administrator will contact counsel and parties involved in matters thus adjourned for possible new dates when circumstances permit.
Until further notice, Registry operations will continue with significantly reduced staff, both in Ottawa and in regional offices. Staff will be available to receive court filings at any of the Court’s registry offices, but parties and the public should expect a significantly decreased level of service. Exceptionally and until April 13, 2020, the Court will accept electronic filing of court documents by email at Information@fca-caf.gc.ca, provided that those documents are in PDF format.
All filing deadlines continue to apply. Parties will be able to request an extension of time for deadlines set out in the Federal Courts Act or Federal Courts Rules if they are unable to meet the filing deadlines in light of current circumstances, but are asked to do so once Court operations return to normal.
Supreme Court of Canada
While the Supreme Court of Canada remains open for case-related matters, it will be closed to the public until further notice. To assist parties in filing their documents within the deadlines set out in the Supreme Court Act and the Rules of the Supreme Court of Canada, documents may be filed by email, whether originating or otherwise, to the following email address. The original paper copies shall be filed subsequently within a reasonable time.
What Does This Mean To You?
Taxpayers should be aware of the changes to the tax payment and compliance deadlines that have been made available by the government. In a time of financial hardship and cash flow uncertainty, the government has effectively provided interest-free financing through the delay of tax payments. However, taxpayers should be prepared to make the required tax payments following this extension.
Taxpayers should also be mindful that there may be tax planning opportunities available to them in times like these, such as:
- As a result of the reduction in interest rates announced by the Bank of Canada, it is expected that the prescribed interest rates will change effective the second calendar quarter of 2020 to a historic low. Certain taxpayers that have advanced funds to family members or trusts through what are called “prescribed rate loans”, may want to look at planning strategies starting next fiscal quarter to take advantage of what may be lower rates for these loans.
- Corporations facing significant financial difficulties may be able to reduce their overall financing costs using distressed preferred shares.
- Payment of capital dividends prior to a corporation’s capital dividend account being reduced due to capital losses.
- Where business, property and stock values have materially dropped, taxpayers who had not previously completed estate planning should consider an estate “freeze” or other intergenerational planning. As well, taxpayers who have previously entered into “freeze” transactions or similar intergenerational planning may wish to consider “re-freezing” if values have decreased. This provides an opportunity for increases in value to pass to family members as the economy recovers.
In addition to the above, there may be other planning opportunities available in these unique times.
These times also call upon us to think of the impact if you or someone in your family falls ill. It is very important to have a health care directive in place to appoint someone to make health care decisions if you become unable to make your own decisions. Ensuring you have your estate planning documents in place, including a Will, or that you update your existing estate planning documents is very important, especially for those who are in a high-risk health group. We are ready to prepare documents on an expedited basis and can provide instructions for signing the documents, while still maintaining social distancing.