6-1 Qualifying revenue includes interest and dividend income arising in course of ordinary activities
The qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. To the extent that investment revenue, such as interest or dividends from investments in securities, arises in the course of an eligible employer’s ordinary activities in Canada in the particular period, is not an extraordinary item or on account of capital, and is included in revenue under its normal accounting practices, it would generally be included in qualifying revenue.
6-2. Whether government assistance directly related to the COVID-19 is excluded as an extraordinary item
Qualifying revenue of an eligible employer is generally determined in accordance with its normal accounting practices. Qualifying revenue means the inflow of cash, receivables, or other consideration arising in the course of the ordinary activities of the eligible employer in Canada in a particular period. For greater certainty, qualifying revenue does not include extraordinary items.
“Extraordinary items” is not a term defined in the Act. Generally, the CRA would expect extraordinary items to meet all three of the following characteristics:
(a) Not be expected to occur regularly or frequently within several years
- Grants or other government assistance that an entity is eligible to receive on a regular or reoccurring basis would not meet this criteria.
(b) Not typical of the normal activities or risks inherent in the normal operations of the entity
- Consideration should be given to the nature of the services or products offered by an entity and the normal environment in which it operates.
(c) Primarily out of the control of owners or management
- Consideration should be given to the extent that inflows are influenced by the decision of owners or management.
... [D]ue to the highly unusual economic impact and response resulting from the COVID-19 crisis, the CRA would generally consider emergency government assistance, including assistance from provinces and municipalities, directly related to COVID-19 to be an extraordinary item. However, the CRA would not consider COVID-19 related government assistance to be extraordinary to the extent that it replaces or is meant to replace normal or recurring government assistance.
Change in revenue sources does not change the application of the qualifying revenue definition
6-2.1. If an eligible employer changes its operations to manufacture essential products during the pandemic, which generates revenues but no profit, is the revenue included in qualifying revenue?
Yes. The qualifying revenue of an eligible employer … would include the revenue arising from the sales of new products. …
[Q.6-2.3] Forgivable portion of a Canada Emergency Business Account (“CEBA”) loan not included in qualifying revenue
The forgivable portion of a CEBA loan meets all the characteristics of an extraordinary item … [and] is not included in qualifying revenue.
Bad debts generally not deducted
6-3. Can an eligible employer deduct its bad debts when determining its qualifying revenue under the accrual method?
When using the accrual method in accordance with its normal accounting practices, an eligible employer should usually not be able to deduct its bad debts (or an allowance for bad debts), when determining its qualifying revenue.
No adjustment to changes in the normalized level of operations
6-6. Can an eligible employer's qualifying revenue for a reference period be adjusted to account for changes in business operations of an eligible employer's business?
No. … For example, an eligible employer would not be able to make adjustments to its qualifying revenue calculations for a prior reference period with unusually low revenue caused by an interruption to its operations due to damage to equipment or premises, an employee lock-out or strike, or a supply chain disruption. Likewise, qualifying revenue calculations cannot be adjusted for a recent expansion of an eligible employer's normal operations … .
Qualifying revenue measured in Canadian dollars where accounting statements in Canadian dollars
6-7. How do foreign exchange rate fluctuations affect the computation of qualifying revenue?
… Where an eligible employer’s normal accounting practice is to convert the inflow of cash, receivables and other consideration to Canadian currency from a foreign currency, then the eligible employer would be expected to use the Canadian currency equivalent of the amounts in the computation of qualifying revenue.
Exception for functional currency reporter
6-8. How will an eligible employer that files its income tax returns using a functional currency compute its qualifying revenue?
.. Where an eligible employer that is a corporation files its income tax return using a functional currency, that currency is the primary currency in which the eligible employer maintains its books and records for financial reporting purposes, and using that currency would likely be part of its normal accounting practice. …Since the qualifying revenue of an eligible employer is determined in accordance with its normal accounting practices, and on that basis, it should be determined in such currency.
9-1. Consolidated revenue can arise in Canada even if ultimate sale does not occur in Canada
In accordance with accounting principles for consolidation, consolidated revenue excludes transactions between members of the group but includes global revenue of the group. The qualifying revenue of an eligible employer does not include the portion of consolidated revenue that does not arise in the course of ordinary activities in Canada. The eligible employer can however include the portion of the consolidated revenue that arises in the course of ordinary activities in Canada whether or not the ultimate sale to third parties occurs in Canada.