Canada Emergency Business Account (CEBA)

CEBA has been a fairly successfully rolled out program – as of writing, approximately 669,000 applicants have received more than $26 billion in funding. Under this program, if the applicant is determined to be eligible, the CEBA program could provide access of up to $40,000 in the form of a partially forgivable loan for small businesses and not-for-profits. These funds are meant to cover operating costs to help sustain business into the recovery phase. These loans are interest-free for a defined period of time. Repaying the balance of the loan on or before will December 31, 2022 will also result in loan forgiveness of 25 per cent (up to $10,000).

Evolution of eligibility criteria

CEBA, like many COVID related programs, has seen several evolutions since it was first announced, including changes that first addressed the scope of eligibility in terms of payroll size (now between $20,000 and $1,500,000) and further announcements made in May by the Government with respect to eligibility for businesses with payroll less than $20,000, including no payroll at all.
With respect to the latter, these adjustments will now facilitate access by, for example, owner-operated small businesses that had been ineligible for the program due to their lack of payroll, sole proprietors receiving business income directly, as well as family-owned corporations remunerating in the form of dividends rather than payroll. Applications under these new expanded CEBA eligibility rules are set to go live on June 19, 2020.

There has been a significant amount of detail released on eligibility and program parameters for this stream of applicant in particular. In addition, the Government has taken the opportunity to provide further clarity on program parameters. It’s a great time for a fresh look at this program, which we do below, and assess whether you are now eligible under the program if you weren’t before.

Recap of CEBA eligibility requirements

The following is a summary of the core eligibility requirements as they stand today:

  • The Borrower is a Canadian operating business in operation as of March 1, 2020.
  • The Borrower has a federal tax registration.
  • The Borrower’s total employment income paid in the 2019 calendar year was between $20,000 and $1,500,000.
  • For applicants with $20,000 or less in total employment income paid in the 2019 calendar year:
    • The Borrower has a Canada Revenue Agency business number and has filed a 2018 or 2019 tax return.
    • The Borrower has eligible non-deferrable expenses between $40,000 and $1,500,000. Eligible non-deferrable expenses could include costs such as rent, property taxes, utilities, and insurance. Expenses will be subject to verification and audit by the Government of Canada.
  • The Borrower has an active business chequing/operating account with the Lender, which is its primary financial institution. This account was opened on or prior to March 1, 2020 and was not in arrears on existing borrowing facilities, if applicable, with the Lender by 90 days or more as at March 1, 2020.
  • The Borrower has not previously used the Program and will not apply for support under the Program at any other financial institution.

Dealing with the expanded eligibility criteria at the point of application

Commencing June 19. 2020, the expanded eligibility rules will be accessible through two distinct application streams for CEBA.

The first is the Payroll Stream, for entities with total employment income paid to employees in 2019 greater than $20,000 and less that $1,500,000.  Applications under this stream will take place through their primary financial institution. Generally under this stream, the requirement will be to demonstrate that the T4SUM of the organization falls within the stated payroll ranges to gain access to the loan.
In the case of a business having more than one payroll account (i.e. RP001, RP002), the 2019 T4SUMs are to be added together to arrive at a total payroll within the specified ranges.

The second application stream is for CEBA applicants is the Non-Deferrable Expenses Stream, and will apply to eligible recipients with payroll of $20,000 or less and 2020 Eligible Non-Deferrable Expenses greater $40,000 and less than $1,500,000. Applicants for this stream will need to follow a two-step process.  
Step 1: The first step requires the business to initiate application at their primary financial institution where they hold their primary business account.
Step 2: The second step will direct applicants to a specialized CEBA website in order to provide supporting documentation of what constitutes their 2020 Eligible Non-Deferrable Expenses and to complete the application.

What are eligible non-deferrable expenses?

Eligible Non-Deferrable expenses are comprised of the following:

  • Wages and other employment expenses to independent (arm’s length) third parties;
  • Rent or lease payments for real estate used for business purposes;
  • Rent or lease payments for capital equipment used for business purposes;
  • Payments incurred for insurance related costs;
  • Payments incurred for property taxes;
  • Payments incurred for business purposes for telephone and utilities in the form of gas, oil, electricity, water and internet;
  • Payments for regularly scheduled debt service;
  • Payments incurred under agreements with independent contractors and fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the Borrower.

It is important to note that these expenses should be reduced by the amount of other government assistance being provided, for example through the Canada Emergency Wage Subsidy.

What support are they looking for in the Non-Deferrable Expenses stream?

There are several supporting documents required upon application for the CEBA loan under the Non-Deferred Expenses Stream:

  • The name of the financial institution where you submitted your application; and
  • Your 9-digit business number (same number you used in your application with your financial institution); and
  • Electronic or paper copies of Receipts / Invoices / Agreements to be uploaded as evidence of your 2020 Eligible Non-Deferrable Expenses.

What if you run more than one business?

Each business, with a unique 9-digit Canada Revenue Agency Business Number, that meets the eligibility requirements, is limited to one CEBA loan.

Businesses that use personal bank accounts

There remains a restriction on businesses that operate out of a personal banking account, rather than a separate business account.  The businesses without a dedicated primary business account are currently not eligible for CEBA. It is unclear at this time if the Government of Canada will reconsider the ineligibility.

Restrictions on use of CEBA funds

The intent behind CEBA funding is to finance on-going expenditures of businesses that are suffering from the COVID-19 pandemic.

Accordingly, loan proceeds should only be used to pay non-deferrable operating expenses – for example, payroll, rent, utilities, insurance, property tax and regularly scheduled debt service. It may not be used to fund any payments or expenses such as prepayment/refinancing of existing indebtedness, payments of dividends, distributions and increases in management compensation.

Exclusions from CEBA program

Excluded entities are as follows:

  • It is not a government organization or body, or an entity owned by a government organization or body;
  • It is not a union, charitable, religious or fraternal organization or entity owned by such an organization or if it is, it is a registered T2 or T3010 corporation that generates a portion of its revenue from the sales of goods or services;
  • It is not an entity owned by any Federal Member of Parliament or Senator;
  • It does not promote violence, incite hatred or discriminate on the basis of sex, gender identity or expression, sexual orientation, colour, race, ethnic or national origin, religion, age, or mental or physical disability, contrary to applicable laws.

Further changes?

Note that it is possible that there will be further changes to CEBA as the Government struggles to deal with businesses that operate out of personal accounts. These businesses remain ineligible for the program, as discussed above. This is not an insignificant sector of the economy, but the issue remains the ability of financial institutions who are delivering the program to assess the ability of applicants to repay.

Should you have additional questions regarding any of the information provided, please reach out to your Welch advisor for clarification of any details.


Chris Meyers, CPA, CA

Joanne Dion, CPA, CIA, CRMA, CRM
[email protected]

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