Bookkeeping for Canadian COVID-19 Subsidies - CEBA, CEWS, CECRA

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Last month in our blog postal service about using Xero and Wagepoint to assess whether our clients qualified for various Canadian subsidies, nosotros mentioned that we would add to this topic by discussing how to record and bookkeep the subsidies received so that your fiscal statements are accurate.

Information technology shouldn't matter which accounting system you're using since the accounting theory backside the transactions can be translated into most, if not all, accounting systems.

FYI:

  1. Sales tax (GST/HST, PST, RST) shouldn't play a factor for any of the transactions below, bated from the last one (CECRA).

  2. We'll be using the 'cash method' of accounting in the examples below.


THE CANADA EMERGENCY BUSINESS ACCOUNT (CEBA)

October 26, 2020 Update: CRA confirmed that the forgivable portion of the CEBA loan is taxable when received. The forgivable portion of the loan is included in income in the year in which the loan is received by virtue of Paragraph 12(one)(x). A taxpayer can elect nether Subsection 12(two.2) not to include the forgivable amount in its income by reducing its outlay or expenses in respect of which the loan is received past the same amount. The election tin can be made by sending a signed alphabetic character to CRA by the due appointment for the corporate revenue enhancement render roofing the period in which the expenditure was made (note1). Amounts that are not forgiven tin be deducted under Paragraph xx(1)(hh) for the year in which the repayment is made.

What is it?

A Government of Canada program that provides interest-free loans of upward to $40,000 to small businesses.  If the loan is repaid on or earlier December 31, 2022, 25% of the loan volition be forgiven (i.e. $10,000).  Therefore, just $xxx,000 of the $40,000 loan has to be repaid. The forgiven $x,000 is taxable income.

To determine eligibility, please read the program overview carefully.  You can too refer to our previous blog post for more than information.

How to record it

Footstep 1: Create a 'Non-Current Liability' chart of account (other 'liability' accounts work too)

  • Utilize a simple naming convention so that yous can keep track of the loan

  • For example, name it 'CEBA Loan' or similar.  You may want to include the name of the institution from where the funds were received in the chart of account name.

Step two: When the funds are deposited into the business banking company account, lawmaking them to this new business relationship yous only created

  • This volition be an increase (debit) to 'Cash' and a credit to your liability business relationship

Step 3: Run a 'Balance Sheet' report to ensure the transaction was recorded correctly. Y'all should see a $40,000 liability:

If you lot repay the loan after December 31, 2022, y'all will have to repay the total amount.  Once that happens, the repayment will offset this account and the remaining rest will be $0.

Whatever involvement paid to an institution afterward December 31, 2022 will exist an involvement expense, like to any other loan.

Of import: If you repay the loan prior to December 31, 2022, part of this loan is forgiven (as nosotros mentioned in a higher place) and is taxable.

For example, if y'all repay $thirty,000 of the $40,000 on Dec 31, 2022, the remaining $10,000 is forgiven.  Your liability account will now testify $ten,000 remaining even though it has been forgiven.

Our suggestion is to create an 'Other Income' account named 'CEBA Loan Forgiveness' or similar in your chart of accounts.

Y'all'll have to create a journal entry removing the $10,000 from the liability business relationship to the 'Other Income' account:

Debit CEBA TD Banking concern Loan $10,000 (liability business relationship)

Credit CEBA Loan Forgiveness $10,000 (other income account)

If you lot run a 'Balance Sheet' report, your 'CEBA' liability account should be $0.

If you run a 'Profit and Loss' (Income Statement) report, your 'CEBA Loan Forgiveness' income account should show $x,000.

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THE CANADA EMERGENCY WAGE SUBSIDY (CEWS)

What is information technology?

A Authorities of Canada programme that provides affected businesses and eligible employers with a subsidy of up to 75% of employee wages.  As of July 17, 2020, the government announced changes that would go along the subsidy until December 19, 2020.  Businesses have to show a drop in revenue to qualify.

To determine eligibility, please read the program overview carefully.  You can as well refer to our previous web log postal service for more data.

How to record it

Step 1: Create an 'Other Income' chart of account

  • Utilize a simple naming convention so that you tin proceed runway of the subsidy

  • For example, proper name it 'CEWS Subsidy' or similar

Step 2: When the funds are deposited into the business bank account, code them to this new account you only created

Step three: Run a 'Profit and Loss' (Income Argument) report to ensure the transaction was recorded accurately:

THE 10% TEMPORARY WAGE SUBSIDY

What is it?

A Government of Canada program that allows eligible employers to reduce their payroll deductions required to be remitted to the Canada Acquirement Agency (CRA).  The subsidy is equal to x% of the remuneration paid from March 18, 2020 to June 19, 2020, up to $1,375 per eligible employee to a maximum of $25,000 total per employer.

To decide eligibility, please read the program overview carefully.  You can too refer to our previous blog post for more information.

How to tape it

*Depending on your accounting system and payroll provider, in that location will be various ways to arrive at the final outcome*

Step 1: Create an 'Other Income' chart of account

  • Utilize a simple naming convention then that yous can keep rail of the subsidy

  • For example, name it 'Temp Wage Subsidy' or like

Step 2: You'll have to crunch the numbers to make up one's mind what your reduction in source deductions are for a sure period.  Or if you use a payroll provider/arrangement that has integrated the '10% Temporary Wage Subsidy' ciphering into their platform, the calculation will be done for you.

Stride 3: Our suggestion is to record your payroll entries and the corresponding deductions as they would accept been recorded had y'all not received the '10% Temporary Wage Subsidy'.

Footstep 4: You'll accept to, through either a journal entry, or an amendment to your payroll transaction, record the reduction in source deductions as 'Other Income' to the account created in 'Step 1' to a higher place.

  • For example, you could enter the full payroll transaction in your accounting organisation and and so enter a deduction on the last line (recorded to 'Other Income' > 'Temp Wage Subsidy') to reduce the transaction total (allowing it to reconcile to your depository financial institution statement transaction).  This has the effect of creating a 'credit' and increasing the 'Other Income' business relationship:

Footstep 5: Run a 'Profit and Loss' (Income Statement) report to ensure the transaction was recorded accurately.

CANADIAN EMERGENCY COMMERCIAL Assistance PROGRAM (CECRA)

What is it?

A Government of Canada plan that provides affected businesses with rent relief of 75% - whereby the Authorities of Canada and the landlord cover 75% of the hire payment and the tenant covers 25% of the hire payment.  The program is eligible for April, May, June and July and businesses have had to have steep revenue declines (lxx%).

To make up one's mind eligibility, delight read the program overview carefully.

How to tape it

*This will depend on whether you received a refund of rent already paid for the respective months or whether yous receive a hereafter rent credit.  In improver, there are sales tax implications and some rent (25% most likely) has to still be recorded*

If you receive a refund of hire already paid

Step 1: Create an 'Other Income' chart of account

  • Employ a elementary naming convention then that you can go along track of the subsidy.

  • For example, proper noun information technology 'CECRA Subsidy' or similar.

Footstep 2: When the funds are deposited into the business bank account, code them to this new account yous just created.

Step 3: Run a 'Turn a profit and Loss' (Income Statement) report to ensure the transaction was recorded accurately.

If you receive a credit for next month'south hire

If yous paid rent and the landlord was providing you with a rent credit for subsequent months, then again, you would follow the flow funds from the depository financial institution statement.  Rent expense would be recorded when paid and for the subsequent month, yous would show no rent expense (since the month, in essence, is rent-gratis).

For the CECRA subsidy, y'all may have a combination of the in a higher place (i.e. rent paid and a refund or credit all in one month).  Y'all'll have to just break it downwardly and tape each transaction separately and you should make it at the desired result.

Good luck on your bookkeeping journey!

Experience gratuitous to add together comments below and nosotros tin can effort to respond with some answers and insights.