CRA indicates that the parties can agree to allocate late CEBA loan repayments between the forgivable and non-forgivable loan components

CRA provided more detailed comments on the consequences of a corporation receiving a $40,000 loan under the Canada Emergency Business Account (“CEBA”) program than those provided recently in 2020-0861461E5. Comments included:

• The financial institution making the loan would reasonably be viewed as a person described in s. 12(1)(x)(i), and the forgivable portion of the loan would be included in income for the corporation’s taxation year ended December 31, 2020 under s. 12(1)(z)(iv) as assistance in the form of a forgivable loan in respect of an outlay or expense (the expenses funded by the loan).
• The corporation, to avoid the s. 12(1)(x) income inclusion, could file the s. 12(2.2) election with its income tax return for its 2020 taxation year to reduce the amount of non-deferrable operating expenses (“whether deductible or not”) incurred in that year, the subsequent year or a prior year.
• If the loan was not repaid as to at least 75% by December 31, 2022, so that the conditions for a forgiveness of $10,000 of the loan were not satisfied, there would be deductions under s. 20(1)(hh) as the forgivable (now, no longer forgivable) portion of the loan was repaid. In this regard, the corporation and the financial institution could agree that any amount repaid by the corporation would be applied first to repayment of the forgivable portion of the loan, so that immediate s. 20(1)(hh) deductions could be generated.
• If there was no such agreement, repayments would be considered to be made pro rata as between the forgivable and non-forgivable portion of the loan, thereby stretching out the s. 20(1)(hh) deductions.

Neal Armstrong. Summaries of 7 October 2020 APFF Roundtable Q. 18, 2020-0862931C6 F under s. 20(1)(hh) and s. 12(1)(x)(iv).