CRA states that the forgivable loan portion of a CEBA loan is a s. 12(1)(x)(iv) receipt

The Canada Emergency Business Account (“CEBA”) program provides interest-free loans of up to $40,000 to small businesses and not-for-profit organizations to fund their expenses. Repaying the balance of the loan on or before December 31, 2022 results in loan forgiveness of 25%. CRA indicated that:

• The forgivable portion of the loan is recognized as an income inclusion under s. 12(1)(x)(iv) as a “forgivable loan …in respect of...an outlay or expense”.
• That amount may effectively offset under s. 12(2.2) against the amount of the related expenses.
• In the year of repayment of 75% of the loan, there are no further tax consequences.
• A taxpayer not qualifying for the 25% forgiveness who settles the loan for 100% of the principal may generally claim a deduction under s. 20(1)(hh) equalling the previous s. 12(1)(x) inclusion – even where the taxpayer made the s. 12(2.2) election.

This interpretation may be portable to forgivable loans received by indebted landlords under the Canada Emergency Commercial Rent Assistance Program (the “CECRA”) program.

Neal Armstrong. Summary of 10 November 2020 External T.I. 2020-0861461E5 under s. 12(1)(x)(iv).