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CEBA / CECRA Forgivable Loans - Tax and Accounting Treatment TaxTips.ca
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Federal Budget ->  COVID-19 Financial Relief  ->   Taxation of and Accounting for Forgivable Loans

Forgivable Loans - Tax and Accounting Treatment

The COVID-19 financial relief has included the following benefits which include forgivable loans:

 - Canada Emergency Commercial Rental Assistance (CECRA) - 100% forgivable, and

 - Canada Emergency Business Account (CEBA) - 25% forgivable.

Taxation of Forgivable Loans

The CECRA and the forgivable portion of CEBA are taxable when received (ITA s. 12(1)(x)), but if and when repaid, are deductible when repaid (ITA s. 20(1)(hh)).

This means that the 25% (up to $10,000) forgivable portion of CEBA and 100% of CECRA will be taxable in 2020.  If any of the forgivable portion is repaid, because requirements were not met, then this can be deducted in the taxation year when the amount is repaid.

See CRA's Income Tax Audit Manual - Compliance Programs Branch (CPB) Inducement Payments

Note: The fact that these items are taxable does not affect revenue for the Canada Emergency Wage Subsidy (CEWS) calculation.  The definition of "qualifying revenue" for CEWS allows the exclusion of funding received from government sources, for its current reference periods and all of its prior reference periods.

Accounting Treatment

The accounting treatment of the government assistance is similar to the tax treatment shown above.

For corporations using Accounting Standards for Private Enterprises (ASPE), ASPE section 3800 regarding government assistance, assistance for non-capital items can either be shown as revenue, as a deduction from expenses, or may be netted against expenses.  If a portion of the assistance relates to expenses in a future accounting period, then that portion could be recognized in the future accounting period.

See the EY information Understanding ASPE Sections 3800 and 3805, Government Assistance and Investment Tax Credits.

For corporations using International Financial Reporting Standards (IFRS), the accounting treatment is the same as with ASPE.  See BDO IAS 20 Government Grants.

Don't forget - only the 25% forgivable portion of the CEBA will be deducted from expenses.

Tax Tip:  Get advice from your Chartered Professional Accountant (CPA) on both the accounting and tax treatment to ensure this is done properly!

Revised: August 25, 2020

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