Principales Questions: Under the Canada Emergency Business Account program (“CEBA”), loans (up to a maximum of $40,000) can be provided by financial institutions to help businesses pay for non-deferrable operation expenses. Under the CEBA, 25% of the loan (up to a maximum of $10,000) can be forgiven if at least 75% of the borrowed funds are reimbursed on or before December 31, 2022. a) Whether, for the purposes of paragraph 12(1)(x), the forgivable portion of the loan could be viewed as being received at the time the borrowed funds are received by the debtor; b) Whether the forgivable portion of the loan is paid by a government, municipality or other public authority pursuant to subparagraph 12(1)(x)(ii); c) Whether subparagraph 12(1)(x)(iii) or subparagraph 12(1)(x)(iv) applies to the forgivable portion of the loan; d) At what time the forgivable portion of the loan would be included in computing the income of the debtor; e) Where a corporation with a December 31 year-end has borrowed $40,000 under the CEBA to pay for allowable non-deferrable operation expenses incurred in its 2020 taxation year: (i) At what time the corporation would include the forgivable portion of the loan; (ii) When should the election under paragraph 12(2.2) be filed; (iii) Where the borrowed money is used to pay for allowable non-deferrable operation expenses incurred in the corporation’s 2021 taxation year-end, when should the election under paragraph 12(2.2) be filed; (iv) Where the corporation has not reimbursed at least 75% of the loan on or before December 31, 2022, when would the corporation be allowed to claim the deduction under paragraph 20(1)(hh)?
Position Adoptée: a) and d) Under paragraph 12(1)(x), the forgivable portion of the loan is included in the income of the debtor in the taxation year in which the loan is received; b) The forgivable portion of the loan would be received from a person described in subparagraph 12(1)(x)(i), assuming the requirements of clause 12(1)(x)(i)(A), (B) or (C) are met; c) It could reasonably be considered that the forgivable portion of the loan has been received as assistance as a forgivable loan in respect of an outlay or expense pursuant to subparagraph 12(1)(x)(iv); e)(i) The forgivable portion of the loan would be included in the income of the corporation in its taxation year ended December 31, 2020; e)(ii) The corporation could avoid the income inclusion under paragraph 12(1)(x) by filing the election under subsection 12(2.2) with its income tax return for its 2020 taxation year to reduce the amount of allowable non-deferrable operation expenses incurred in that year; e)(iii) The corporation could avoid the income inclusion under paragraph 12(1)(x) in its 2020 taxation year by filing the election under subsection 12(2.2) with its income tax return for its 2021 taxation year to reduce the amount of allowable non-deferrable operation expenses incurred in that year; e)(iv) Where the intent of the parties is that any amount reimbursed by the corporation will be applied first in repayment of the portion of the loan that was initially forgivable, the corporation could claim a deduction under paragraph 20(1)(hh) with respect to the amount reimbursed in the taxation year in which the reimbursement is made, up to the amount included in its income pursuant to paragraph 12(1)(x). If the intent of the parties is unclear in that regard, the deduction under paragraph 20(1)(hh) would be equal to that proportion of the amount reimbursed in the taxation year that the portion of the loan that was initially forgivable is of the outstanding balance of the loan as at January 1st, 2023, due to the fungible character of the borrowed money. Under this approach, the total amount of the deduction under paragraph 20(1)(hh) will be equal to the amount of the income included under paragraph 12(1)(x) when the borrowing of $40,000 is fully reimbursed.
Raisons: According to the law.
