News

COVID-19 and the Economic Impact on Individuals and Businesses

Apr 3 2020

The COVID-19 pandemic represents a serious health threat to individuals, and a significant disruption to daily life and the Canadian economy. Some sectors, such as the energy, travel and hospitality, and service industries, are being particularly hard hit. However, it’s important to underscore that while the impact is large, it is expected to be transitory. Authorities around the world have taken bold and necessary measures to contain the spread of the virus and to support people and businesses through a very challenging time as the economic impact of the pandemic ripples across Canada.

While the effects of the pandemic are pervasive, the more prominent economic impacts stemming from the COVID-19 outbreak are as follows: 

Employment Income. For many individuals, this is the most significant economic impact of the pandemic. This can range from those who are sick, quarantined or forced to stay home to care for family members to those who experience reduced hours, reduced salary or longer-term impacts such as layoffs.

Housing. The largest expense for many individuals is the cost of a residence. Without income and a delay in the receipt of income support programs, many individuals are facing not being able to pay the rent due in April. For homeowners, regular mortgage payments and/or property taxes will need to be paid in the not too distant future. 

Business Continuity. Many businesses such as tourism, hospitality, entertainment, air transportation, retail, and especially in Alberta, commodity-based industries are particularly vulnerable to cash-flow problems stemming from the pandemic. These can also include businesses that were already struggling with profitability, low cash reserves or elevated levels of debt. Cash-flow management needs to be an integral element of the overall risk assessment and action planning in the near term to ensure businesses can weather the storm.

Personal Income taxes. Notwithstanding the pandemic, individuals are still required to file their 2019 income taxes but there could be delays due to personal or family illness, quarantine, availability of qualified tax preparation assistance and receiving all source documents needed to file.

Corporate Reporting. Businesses are still required to meet all regulatory and contractual obligations including filing corporate income taxes, payroll filings, annual returns, reporting to lenders and continuous disclosure requirements for public companies. There could be delays in meeting these obligations due to illness or quarantine of key staff and/or a lack of availability of qualified advisors for preparation of financial statements, income tax returns and audit reports.

Technology. Beyond making sure that core systems remain operational throughout the effects of the pandemic, technology leaders must also consider compensating for strains on a business relating to things such as increased cybersecurity threats, supply chain issues and human resource effects where people in the organization need to work remotely. 

Economic Responses from Government

In order to support households and business during this containment phase, governments are prioritizing providing maximum funding to the health care system, smoothing out the economic shock and avoiding the hard landing of a recession that would only serve to deepen the hardship on the population. Management of the associated government debt will be addressed once the crisis has passed.

Federal Support for Individuals. In addition to programs to assist vulnerable individuals such as the homeless, the programs available from the Federal government include the following:

  • The New Canada Emergency Response Benefit.  A taxable benefit of $2,000 a month for up to four months is available to qualified individuals impacted by a loss of employment, reduced workload, self-employed individuals or those needing to be a caregiver along with an associated lack of access to paid leave or other income support. If an individual has stopped working because of COVID-19, they should apply whether or not they are eligible for Employment Insurance. The Benefit is available for the period from March 15, 2020 to October 3, 2020.
  • Employment Insurance. Available to those individuals that were recently laid off or have reduced hours and qualify for Employment Insurance benefits — the one week waiting period and the need to provide a medical certificate is waived for those individuals in imposed quarantine.
  • Special Goods and Services Tax credit payment. A one-time special payment is available by early May 2020 through the Goods and Services Tax credit for low and modest-income families estimated to be $400 for single individuals and close to $600 for couples.
  • Increasing the Canada Child Benefit. An extra $300 per child is available through the Canada Child Benefit (CCB) for 2019-2020 which will be delivered as part of the scheduled CCB payment in May 2020.
  • Mortgage support. Canadian banks and mortgage insurers have committed to work with their customers on a case-by-case basis to find solutions to help them manage hardships caused by COVID-19 including payment deferral, loan re-amortization, capitalization of outstanding interest arrears and other eligible expenses, and special payment arrangements.
  • Personal income taxes. An extension of filing 2019 personal income taxes to June 1, 2020 has been given with payment of income taxes to September 1, 2020.
  • Eased rules for RRIF deductions. The required minimum withdrawals from Registered Retirement Income Funds (RRIF) have been reduced by 25% for 2020 to help avoid selling assets prematurely in the current market decline.
  • Canada Student Loans. Effective March 30, 2020, a six-month interest-free moratorium on the repayment of Canada Student Loans for all student loan borrowers — no application is required.

Alberta Support for Individuals. In addition to things such as extending deadlines for Alberta drivers’ licenses, identification cards, vehicle registrations, other permits and certificates to May 15, 2020, the programs available to Alberta residents from the provincial government include the following:

  • Emergency isolation support. Eligible working Albertans can receive a one-time emergency isolation support payment of $1,146 if they meet certain criteria.
  • Utility payment deferral. Available for electricity and natural gas bill payments for the next 90 days to qualified individuals.
  • Student loans repayment deferral. Repayments will be paused, interest free, for six months, beginning March 30, 2020.
  • Deferrals on ATB lines of credit and mortgages. Payments for each can be deferred for up to six months for qualified individuals.

In addition, the City of Edmonton is delaying penalties to property tax payments such that late fees will not be charged to tax payments made subsequent to June 30, 2020 and by August 31, 2020.

Federal Support for Businesses. In addition to programs assisting vulnerable individuals such as the homeless and monetary support provided by the Bank of Canada, the programs available to businesses from the Federal government include the following:

  • Extending the Work-Sharing program. The maximum duration of the Work-Sharing program is extended from 38 weeks to 76 weeks helping business avoid layoffs during the outbreak.
  • Providing businesses with wage subsidies. The new Canada Emergency Wage Subsidy is a temporary wage subsidy available for qualifying employers for a period of up to 12 weeks equal to 75% of remuneration paid during that period up to a maximum of $847 per week, retroactive to March 15, 2020.  Qualifying employers are those (other than public sector entities, e.g. crown corporations or hospitals) that have experienced a minimum 30% decrease in revenues due to COVID-19. This includes small and large, non-profit organizations and it is assumed that registered charities, partnerships and proprietorships will also be eligible as they were in the prior version of the program. Organizations that do not qualify for the Canada Emergency Wage Subsidy may qualify for the previously announced wage subsidy of 10 per cent of remuneration paid from March 18 to before June 20, 2020. Further details are expected to be disclosed soon by the federal government.
  • Business Credit Availability Program. This is available to provide more than $65 billion of additional support, largely targeted to small and medium-sized businesses, through the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) through cooperation with private sector lenders to coordinate on credit solutions for individual businesses, including in sectors such as oil and gas, air transportation and tourism.
  • Canada Emergency Business Account. As part of the Business Credit Availability Program, the government will provide interest-free loans up to $40,000 for qualified small businesses and not-for-profit entities where their revenues have been temporarily reduced.
  • Insured Mortgage Purchase Program. The Canada Mortgage and Housing Corporation plans to purchase up to $150 billion of insured mortgage pools to provide long-term stable funding to banks and mortgage lenders to add liquidity to Canada’s mortgage market.
  • Corporate income taxes. Notwithstanding there is no change to filing deadlines for corporate income tax returns, all businesses may defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after March 18 and before September 2020. This relief applies to tax balances due, as well as instalments under Part I of the Income Tax Act and no interest or penalties will accumulate on these amounts during this period.
  • Filing of other returns. The filing of trust returns (T3), partnership returns (T5013), and statement of amounts paid or credited to non-residents (NR4) are extended to May 1, 2020.

Alberta Support for Businesses. In addition to relief related to education property taxes, the programs available to Alberta businesses from the provincial government include the following:

  • Energy Sector Relief. This support includes funding the Alberta Energy Regulator industry levy for six months, extending the term of mineral agreements expiring in 2020 by one year and providing a $100 million loan to the Orphan Well Association to support immediate reclamation efforts and job creation.
  • More time to pay income taxes. Consistent with federal relief, all provincial corporate tax balance and instalment payments will be deferred from March 19 to August 31, 2020.
  • Deferrals on ATB loans and lines of credit. Payments for each can be deferred for up to six months for qualified businesses and additional access working capital will be provided for businesses.
  • WCB Premiums.  All 2020 premiums will now be deferred until 2021. Businesses with $10 million or less in insurable earnings for 2020 will be classified as small and medium-sized private sector employers and will be eligible for a 50% reduction in their 2020 premiums when they become payable in 2021. Any premiums that have already been paid by businesses will be refunded to them automatically. Any large businesses with insurable earnings over $10 million will be required to repay the deferred premiums in 2021.
  • Utility payment deferral. Available for electricity and natural gas bill payments for the next 90 days to qualified farms and small commercial customers.

In addition, the City of Edmonton is delaying penalties to property tax payments such that late fees will not be charged to tax payments made subsequent to June 30, 2020 and by August 31, 2020.

Summary

We are available to help identify and provide assistance in accessing programs so that you can receive relief in a timely manner. Since these government programs may be subject to change as circumstances evolve and internal resources may be strained in the near term due to the effects of the pandemic, we can provide access to qualified experts and accurate information to assist your business as we move through the impacts of the pandemic on your business.

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