by Matthew Pollock

by James Pendergast

CRA Articles, News, TaxJanuary 20, 20220 comments

Canada Emergency Business Account Extension of Repayment Terms

The Canada Emergency Business Account (CEBA) was an application that was open from April 9, 2020, to June 30, 2021. If granted, it provided small businesses in Canada with a loan at a very favourably interest/repayment rate to support small businesses during the COVID-19 Pandemic. More specifically, CEBA provided interest-free loans of up to $60,000 to small businesses to aid in covering their operating costs during a time where their revenues have been reduced. These loans are also partially forgivable.

Canada Emergency Business Account Repayment

If a business applied for CEBA, and received the loan, at some point it will have to repay it. The date of repayment will determine how much of the loan’s principal amount, you will have to pay back.

In general, the repayment terms are as follows:

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 required before December 31, 2023.
• If loan remains outstanding after December 31, 2023, only interest payments required until full principal is due on December 31, 2025.

If, however, the outstanding principal amount, is repaid by December 31, 2022, some of the remaining principal amount will be forgiven, provided that no default under the loan has occurred. In other words, if you pay the loan back on time, the Government will allow you to pay back less of the loan than you originally owed; a clear incentive for early and/or on-time repayment. Payment before this date will allow a loan forgiveness of up to 33 percent or $20,000.

Canada Emergency Business Account Repayment Update

Considering the latest Omicron variant and subsequent lockdown have once again limited a small business’s ability to earn income, the government announced on January 12, that the repayment deadline for CEBA loans to qualify for partial loan forgiveness is being extended from December 31, 2022, to December 31, 2023, for all eligible borrowers in good standing.

The Government did so to support short-term economic recovery and offer greater repayment flexibility to small businesses and not-for-profit organizations, many of which are facing continued challenges due to the pandemic. The terms of the loan repayment remain the exact same as listed above, the only change is the final date when repayment is due (now being December 31, 2023).

Any outstanding loans would subsequently convert to two-year term loans with interest of 5 per cent per annum commencing on January 1, 2024, with the loans fully due by December 31, 2025.

As an example: If you borrowed $40,000: Repaying the outstanding balance of the loan (other than the amount available to be forgiven) on or before December 31, 2023, will result in loan forgiveness of 25 percent (up to $10,000).

As can be seen from the above examples, in order to qualify for the loan forgiveness, you must repay the outstanding balance in full (other than the amount that will be forgiven) by the updated December 31, 2023 deadline.

Overall, CEBA has been a great way for the Government to assist small businesses with the financial impact of COVID-19. The repayment terms are rather straightforward, but if they are not complied with, it can have a serious negative impact on a small business. If you have any questions or need any assistance regarding CEBA, or any other government program, or other tax matter, please feel free to contact us today!

**Disclaimer

This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.