CEBA Loan Repayment Deadline Extended

José L. Riquelme, CPA, CGA

There is good news for business owners who continue to struggle through the pandemic:  CEBA loan repayments have been postponed for a year.  Here are the details: in light of the new developments of the Omicron variant of Covid-19, the Federal Government is preparing a battery of measures to assist Small and Medium-sized Businesses.

One of these measures announced this week, is the delay of the CEBA loan repayment. It was originally scheduled for December 31, 2022 and it has now been extended to December 31, 2023. This has been highly anticipated since it was proposed in the December 14, 2021 Economic & Fiscal Update.

The extension does not affect the eligibility for the Grant portion of the loans: 25% for the original portion (up to $40,000) resulting in a benefit of up-to $10,000 and 50% on the additional loan (up to $20,000) resulting in a benefit of up-to an additional $10,000. Recall that those amounts are reported when received, not when forgiven.

Businesses that used the two tranches and are able to repay the loan by December 31, 2023, will benefit with a grant of up to $20,000 or 1/3 of the loaned amount. For businesses that are unable to repay the loan by the new deadline, the balance will convert to a two-year term loan (down from the original three-year term) with an interest rate of 5% per annum commencing on January 1, 2024 to December 31, 2025. The new extended deadline also applies to the Regional Relief and Recovery Fund to qualify for partial forgiveness.

Now that we have this good news, it will be worthwhile to discuss with business owners what they will need to be able to justify, in case of audit:

The business must show that it was suffering ongoing financial hardship because of the pandemic.  This could include a decline in revenues or cash reserves, or an increase in operating costs for example.  The business must also be prepared to show that it intended to continue to operate or resume operations, and that it made all reasonable efforts to reduce costs or adapt the business to improve its viability.  Professionals can add value by helping business owners document these details, in advance of the rush of tax season.

Drilling down deeper, the CEBA loan had to be used for eligible non-deferrable expenses that were incurred and not deferrable after 2020:

  • 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 telephone and utilities in the form of gas, oil, electricity, water and internet for the business
  • Payments to service regularly scheduled debt
  • Payments incurred under agreements with independent contractors
  • Fees required in order to maintain licenses, authorizations or permissions necessary to conduct business by the organization
  • Payments incurred for materials consumed to produce a product ordinarily offered for sale by the organization
  • Any other expense in a category listed by the government in its web as being an Eligible Non-Deferrable Expense for the purpose of the CEBA Program.

Here’s what the money can’t be used for:

  • Prepayment / refinancing of existing indebtedness
  • Payments of dividends, distributions and increases in management compensation
  • Increases of the compensation of related parties
  • All except to the extent such expense falls under a category indicated on the CEBA program web pages