With COVID-19 shutting down many dental practices across the country, the government has introduced new benefits to help businesses weather this storm. Here is an overview of what’s available for dentists and some ways to optimize the benefits for you and your team.
Canada Emergency Wage Subsidy (CEWS) – This benefit provides a subsidy of 75% of wages paid, up to $847 per week from March 15, 2020 to June 6, 2020.
Canada Emergency Response Benefit (CERB) – This benefit provides individuals with $2,000 per month for up to 4 months who have been without work and pay for 14 consecutive days.
Canada Emergency Business Account (CEBA) – This benefit provides businesses who have payroll between $20,000 to $1,500,000 with an interest-free loan of up to $40,000 until December 31, 2022 when it converts to an interest-bearing loan. $10,000 of the loan is forgivable if repaid by December 31, 2022.
Helping staff while minimizing cost
While the government discourages employers from abusing the benefits, it is possible for employees to have their wages fully funded by the government. Keep in mind that optimizing is a mathematical exercise but changing an employee’s wages can have legal consequences; speak to your employment lawyer before implementing any employment changes. To do so, you need to separate employees based on their pre-crisis wages as follows:
- $0 to $1,000 per week
- $1,001 to $1,130 per week
- $1,130 or more per week
Employees with $0 to $1,000 in pre-crisis weekly wages
Employees in this category can receive up to $750 per week in government benefits. This comes from a combination of CERB ($500 per week) and CEWS (up to $250 per week). The CERB allows an individual to receive up to $1,000 per month or $250 per week, therefore it’s possible for an employee to combine both the CERB and CEWS. Going over the $1000 per month/$250 weekly wage however means an employee would have to repay the CERB.
As an example, Mary is currently receiving the CERB, prior to Covid-19 she was making $800 per week. As an employer, you decide you want to help Mary out, so you rehire her. You have two options:
- Pay her $800 per week. Mary receives $800, you receive $600 in CEWS from the government, and you pay $200 difference out of pocket. Mary ends up with $300 more in her pocket compared to just the CERB but the employer ends up having to pay $200.
- Pay her $250 per week. This is the maximum Mary can receive before she must repay her CERB. In this case, Mary keeps her $500 per week CERB payment and she gets $250 per week from you which is covered by the CEWS. In the end, Mary receives $250 more per week compared to just the CERB, but does not cost you anything.
For employees in this category pay them 75% of their pre-crisis wages up to a maximum of $250.
Employees with $1,000 to $1,130 in pre-crisis weekly wages
Employees in this category would be better off forgoing the CERB. With the CEWS they can receive between $750 to $847 per week in government benefits. This is based on 75% of their pre-crisis weekly pay. An employee making $1,100 weekly could be paid $825 per week without costing the employer any money.
For employees in this category pay them 75% of their pre-crisis wages. You can pay them more, it will just come out of your pocket.
Employees with $1,130 or more in pre-crisis weekly wages
Employees in this category can receive the maximum $847 per week. While it seems easy enough to just pay your staff $847 per week instead of their normal wages, you may wish to exercise caution here and compare everyone’s salary as a whole. CRA can challenge your claim where you and your family members are getting more than $847 per week, but all other staff get exactly $847 per week. For employees in this category pay them $847 per week but be mindful of what you are paying yourself and family members.
Getting the most out of the $40,000 interest-free loan
It’s important to remember that the CEBA was created to help businesses facing immediate cash flow problems. The funds were meant for paying rent, personal protection equipment, utilities, salaries to staff and other necessary business expenses. Using the $40,000 to issue dividends to yourself and family members or to purchase investments is not what the government intended and may result in interest and penalties. This is not to say you can’t pay dividends or salaries to yourself and family members and/or pursue investment opportunities, but that you should have a plan and records in place to do so. By maintaining records to show where the $40,000 is being utilized, you can then use any excess cash to pursue investments and/or paying yourself and family members. Your records should include:
- Copy of your bank statement showing your bank balance prior to receiving the $40,000 loan so that you can differentiate your cash versus the government’s.
- A list of expenses you intend to use the $40,000 loan for. Use this list as the starting point for a budget so you know how much you need to spend in the coming weeks or months.
- Copies of cheques and invoices that were paid using the $40,000 loan.
- Copies of investment transactions and cheques or invoices for non-essential expenses. These expenses should not exceed your bank balance prior to receiving the $40,000.
Another important benefit of the CEBA is that $10,000 is forgivable. In order to receive the full $10,000 benefit you need to have a balance of $40,000 outstanding as of December 31, 2020. You can then proceed to repay $30,000 between January 1, 2021 to December 31, 2022 and the remaining $10,000 will be forgiven.
As an example, if you borrow $40,000 and have excess cash and decide to repay $30,000 on November 30, 2020 leaving you with a $10,000 balance as of December 31, 2020, you will only be eligible for $2,500 (25% of $10,000) of loan forgiveness. This is one of the rare situations where paying your bills early can cost you money.
There’s no free lunch in this world, when COVID-19 is in our rear-view mirror, expect some unfavourable tax changes in the future. Until then, take the time to use the government benefits to put you and your team in the best position possible to weather the storm.
About the Author
This article was prepared by David Chong Yen*, CPA, CA, CFP, Louise Wong*, CPA, CA, TEP, Basil Nicastri*, CPA, CA and Eugene Chu, CPA, CA of DCY Professional Corporation Chartered Professional Accountants who are tax specialists* and have been advising dentists for decades. Additional information can be obtained by phone (416) 510-8888, fax (416) 510-2699, or e-mail david@dcy.ca / louise@dcy.ca / eugene@dcy.ca . Visit our website at www.dcy.ca. This article is intended to present tax saving and planning ideas, and is not intended to replace professional advice.
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