Much information has been published in recent weeks about government programs designed to assist businesses and individuals during the COVID-19 pandemic. However, specifics about whether farmers can qualify for these programs have not been readily available.

This article examines some of the eligibility criteria for four of the most popular COVID-19 programs from the perspective of farming businesses. In conjunction with other Baker Tilly publications on COVID-19, this information should help clarify whether you can benefit from these programs.

Canadian Emergency Business Account

The Canadian Emergency Business Account (CEBA) is a $40,000 interest-free loan with $10,000 eligible for complete forgiveness if the other $30,000 is repaid on or before December 31, 2022.  

Any type of farming business (corporation, proprietorship, partnership) may apply; the only restriction is that the loan proceeds must be used for non-deferrable operating expenses, such as crop inputs, fuel, repairs, wages, property taxes, etc. Most farming businesses will have ample non-deferrable expenses, so this restriction should not be a concern. No drop in farming revenue or any other financial distress related to the COVID-19 pandemic is required to receive this loan.

Originally, there were two qualification requirements that could create concerns for some farming businesses. First, the business must have paid and issued T4 slips for wages totaling between $20,000 and $1,500,000 in 2019. Some farms would not have any T4 wages, as they either have no employees, have workers paid as independent contractors or are incorporated and remunerated entirely with dividends. However, the government has announced expanded eligibility for CEBA, where businesses with less than $20,000 of payroll can qualify, as of June 19, 2020.

Second, farms must have had a business bank account opened as of March 1, 2020. Farms that operate their businesses through personal chequing accounts – rather than business bank accounts – would not qualify. Unfortunately, this rule has not been changed by the expanded eligibility requirements.

Farms that do meet the criteria are eligible and may apply for the CEBA by contacting their banks. Banks are administering the program on behalf of the government.

Canadian Emergency Response Benefit

The Canadian Emergency Response Benefit (CERB) program provides a benefit of $2,000 per month for individuals, self-employed or otherwise, who cease working due to the pandemic.

To qualify, the recipient must be over 15 years of age and must have at least $5,000 of earned income in 2019 or in the previous 12-month period before applying for the CERB. The $5,000 must be “earned” income, including employment income, self-employment income, some EI benefits, royalties, and non-eligible dividends. Income that would not qualify as “earned” would include eligible dividends, rent, interest, CPP/OAS benefits, pension income, etc. 

On the issue of self-employment income, the Canada Revenue Agency (CRA) has clarified that the $5,000 is “net” self-employment income and not “gross” income. Thus, a farmer who stops working due to the pandemic still might not qualify for the CERB because net income was below the $5,000 limit, even though gross income was above it. For example, if a farm had $20,000 of total cattle sales (gross income) but $16,000 in expenses, net income would only be $4,000 ($20,000 less $16,000) and would thus be below the limit.

In addition to the $5,000 of earned income, applicants must have ceased working for reasons related to the pandemic for at least 14 consecutive days during the first four-week period, and must not expect to receive more than $1,000 from earned income during those 14 days. For subsequent four-week periods, applicants must expect their situation to remain unchanged and should not expect to receive more than $1,000 from earned income for the period. Workers who are sick, quarantined or taking care of someone who is sick with COVID-19 would be included, as would working parents who must stay home without pay to care for children who are sick or need additional care because of school and daycare closures.

Many farmers will have difficulty meeting the above criteria if they are doing largely the same amount of work on the farm as they were prior to the pandemic. Even if earned income from the farm drops below $1,000 per month, it could be argued that this was due to the normal business practice of when crops and animals are sold, and not necessarily due to the pandemic.    

Notwithstanding the farmer’s status, there might be family members (spouses and children) who are no longer able to work on the farm due to the pandemic. Such family members may, for example, need to stop working to take care of someone with COVID-19 or to provide care for children who are no longer attending school due to the pandemic. In these situations, it is possible some family members could qualify for CERB benefits, particularly if the farm now must incur the expense of hiring contract workers to replace them.

For corporations, the $1,000 monthly income limit is based on wages or dividends paid each month. If a family member qualifies for the CERB, they should not be earning more than $1,000 in wages or dividends from the company in each respective period.

Applications for the CERB have been available since early April but it is still not too late to apply. Applications may be submitted online through the CRA’s My Account system, or by calling 1-800-959-2019.

Note that CERB should be included as taxable income on 2020 returns.

Temporary Business Wage Subsidy (10 per cent wage subsidy)

The Temporary Business Wage Subsidy provides a subsidy of 10 per cent of gross wages payable between March 18 and June 19, 2020, up to a maximum of $1,375 per employee or $25,000 total for certain eligible small businesses (which would include the majority of farms).

Wages to owners and family members, as well as non-related individuals, qualify. 

To be eligible for this program, businesses must already have had a payroll account set up with the CRA as of March 18, 2020. As noted above, some farming businesses do not have such an account as they do not pay any wages, and therefore they would not qualify.

Farming businesses that do qualify should consider paying enough wages to employees (including family members) during the March 18 to June 19 period to take full advantage of the program. This would mean enough wages to get as close as possible to the $1,375 per employee and $25,000 total maximums. 

To apply for this program, 10 per cent of gross wages paid for each employee is deducted from the income tax that must otherwise be remitted to the CRA for each pay period, up to the $1,375 maximum. For example, if an employee’s gross pay for April was $2,000, then $200 (10 per cent) would be deducted from the income tax that would otherwise be remitted to the CRA in May.

Only the tax portion of the remittance may be reduced. Employers are still required to remit the full amount of other payroll deductions (such as CPP and EI). 

Canada Emergency Wage Subsidy (75 per cent wage subsidy)

The Canada Emergency Wage Subsidy (CEWS) can provide a subsidy of 75 per cent of gross wages payable between March 15 and June 15, 2020, up to a maximum of $847 per week per employee. In certain circumstances, the subsidy can be as high as 100 per cent (see our April 27 Tax Alert for details).

As with the Temporary Business Wage Subsidy, businesses must already have had a payroll account set up with the CRA (in this case on March 15, 2020) to qualify for the CEWS.

The subsidy also requires a minimum drop in revenue as compared to a reference period. A 15 per cent drop in revenue is required to qualify for March 2020, as compared to March 2019 or an average of January and February 2020. A 30 per cent drop in revenue is then required for April 2020 and May 2020, again compared to the same month in 2019 or an average of January and February 2020. However, if a business qualifies for one period (e.g., March) it would automatically qualify for the following period (e.g., April).

Businesses use either the “accrual” method or the “cash” method of accounting to measure the drop in revenue. Most farmers already use the cash method to calculate their income for tax purposes. This method only considers cash receipts (and equivalents) when calculating revenue, rather than also including accrual adjustments, such as inventory, accounts payable, accounts receivable and prepaid expenses.

It is possible that some farms may qualify for the 75 per cent wage subsidy due to a drop in revenue not directly related to the pandemic (particularly if the cash basis is used to calculate revenue). Many types of farms, such as beef and cash crop operations, have irregular monthly cash flows due to when commodities must be marketed, and it is possible there could be a 15 per cent or 30 per cent drop in revenue as part of normal business practices. 

Having said that, care should be taken so that any drop-in revenue is from normal business activity and not deliberately done just to qualify for the program.  This is because of wording in the legislation that specifically warns against “employers that enter into transactions or participate in events (or a series of transactions or events) or take action (or fail to take action) that has the effect of reducing their revenue and it is reasonable to conclude that one of the main purposes of the transaction, event or action is to meet the Required Revenue Reduction” to qualify for the program.

If the CRA finds that there was deliberate action or inaction that caused a business to qualify, the business could be at risk not only of having to repay the subsidy but might also face penalties ranging from 25 per cent to 50 per cent of the amount received (depending on the degree of negligence determined), and possible imprisonment in extreme cases.

Additionally, in contrast with the ten per cent subsidy, the 75 per cent wage subsidy includes special rules to limit the amount of wages that may be paid to family members. The subsidy is limited to the average weekly wages already paid to family members between January 1 and March 15, 2020. Thus, if family members were not being paid during that period, nothing may be claimed for them for the CEWS benefit. 

However, any wages that are paid to non-family members are not subject to this restriction, and new non-family hires would also still be eligible for the subsidy.

Further, those applying for the 75 per cent CEWS subsidy must also apply for the 10 per cent wage subsidy. Any payments made under the 10 per cent program are then deducted from the 75 per cent subsidy.

Those considering applying for CEWS should be aware that the government intends to publish the names of all businesses that apply for the program in the future. Farmers who are concerned about their privacy may need to weigh that issue against their cashflow needs.

The application period for the CEWS opened on April 27, 2020. Applications are made online through the CRA’s My Business Account.

This article represents merely an overview of the many complex COVID-19 pandemic relief programs available. Contact your local Baker Tilly farm advisor to review your specific situation and to determine your eligibility before applying.

Meet the Author

Thomas Blonde
Elora, Ontario
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