What taxpayers need to know about the Department of Finance’s COVID-19 Economic Response Plan

On March 18, 2020, the Department of Finance announced the COVID-19 Economic Response Plan (“the COVID-19 ERP”) designed to help Canadians facing hardship as a result of the COVID-19 outbreak.

This post focuses on the tax-related measures contained in the COVID-19 ERP. To learn about other measures, such as employment insurance benefits, income support for workers, mortgage default management tools, wage subsidies and more, visit the Department of Finance website at https://www.canada.ca/en/department-finance/economic-response-plan.html. 

For all Canadian taxpayers who are trying to keep their heads above water amidst this period of uncertainty, but especially for individuals and small/medium business-owners who are experiencing the consequences of business closures, here are some helpful “tax breaks” that you need to know.

Individuals

The T1 tax return filing due date is extended from April 30, 2020 to June 1, 2020. This extension will not affect self-employed individuals, who still have until June 15 to file their tax returns. This extension also does not apply to Goods and Services Tax and Harmonized Sales Tax (“GST/HST”) returns for self-employed individuals, which must still be filed by their due date.

Taxpayers will no longer need to meet tax preparers in person to review and sign their tax returns, as the CRA will be accepting electronic signatures as having met the signature requirements of the Income Tax Act. The waiver of the in-person signature requirement also applies to forms T183 or T183CORP authorizing tax preparers to file taxes on behalf of taxpayers.

The payment of any tax balances or installments charged under Part I of the Income Tax Act (which includes taxes payable on employment and self-employment income, income from property and capital gains) that become owing on or after March 18, 2019 (when the COVID-19 ERP was implemented) and before September 2020 is deferred until after August 31, 2020. No interest or penalties will accumulate on these amounts during the deferral period.

Since the payment deferral is only allowed for taxes payable under Part I of the Income Tax Act, GST/HST imposed under the Excise Tax Act, provincial sales tax levied under provincial statutes[1], and taxes levied under other parts of the Income Tax Act (as, for example, RRSP overcontribution tax, charged under Part X.1 of the Income Tax Act) must be paid by their due date to avoid the imposition of penalties and interest.

The COVID-19 ERP tax deferral and payment and interest relief also does not extend to source deductions and withholding taxes, which must be deducted and remitted on time.

Trusts

For trusts having a taxation year ending on December 31, 2019, the deadline to file a T3 tax return is extended from March 30, 2020 to May 1, 2020. As for all other taxpayers, taxes payable by the Trust under Part I of the Income Tax Act may be deferred until after August 31, 2020.

Corporations and Partnerships

Corporations and Partnerships are not subject to the COVID-19 ERP filing deadline extensions. Thus, T2 Corporation Returns and T5013 – Partnership Information Returns must be filed by the original deadlines.

Nevertheless, corporations will also enjoy the benefit of payment deferral to after August 31, 2020 of any taxes (or installments) that become owing on or after March 18, 2019 and before September 2020. No interest or penalties will accumulate on these amounts during this deferral period.

Again, only taxes owing under Part I of the Act are subject to payment deferral and relief of penalties and interest. GST/HST/PST amounts, source deductions and withholding taxes, and taxes payable under other parts of the Income Tax Act (for instance taxes payable by private corporations on the receipt of taxable dividends under Part IV of the Income Tax Act), must be paid by the due date to avoid imposition of penalties and interest.

GST Tax Credits (“GSTC”) and Canada Child Benefit (“CCB”) Payments

The Government is proposing to provide a one-time GSTC special payment by early May 2020 of up to $400 for single individuals and up to $600 for couples, and an increase to the maximum annual CCB payment amount by $300 per child, only for the 2019-20 benefit year.

 Withdrawals from Registered Retirement Income Funds (“RRIF”)

 Seniors will benefit from a 25% reduction on the minimum withdrawals from RRIFs for 2020. Individuals receiving variable benefit payments under a defined contribution Registered Pension Plan will benefit from similar rules.

Audit Deferral and Suspension of Audit Interactions

Post assessment GST/HST or Income Tax audits for small or medium (“SME”) businesses[2] will not be initiated until April 15, 2020 (4 weeks from March 18, 2020, when the COVID-19 ERP was implemented).

The Government also added that, for the vast majority of the businesses, the CRA will temporarily suspend audit interaction with taxpayers and representatives. The COVID-19 ERP did not specify which types of businesses will benefit from the “audit suspension” and for how long.

Summary Table – deadlines and payment deferral

Conclusion

All in all, the Canadian Government is showing a willingness to assist Canadian taxpayers in overcoming the financial setback caused by the COVID-19 outbreak. While the tax measures are going to be costly in the short-term (the payment deferral proposal, alone, is expected to cause a $55 billion impact on the Government’s budget) and are clearly not meant to be sufficient to negate the effects of the partial or complete shutdown of businesses, they certainly brought some comfort and signal the Government understands that taxes should not be on the minds of Canadians at this time.

[1] Except for the province of Saskatchewan, which is allowing a request for relief of penalties and interest for late filing of provincial sales tax returns

[2] A small business is defined by Statistics Canada as one that employs from 5 to 99 employees and a medium business is one that employs 100 to 499 employees (https://www.ic.gc.ca/eic/site/cis-sic.nsf/eng/h_00005.html#employment_size_category)

[3] Only for taxes charged under Part I of the Income Tax Act

[4] Only for income tax amounts that become owing on or after March 18, 2020 and before September 2020.

[5] Only for income tax amounts that have the payment due date extended.