Tax Alert - Federal government fiscal stimulus package in response to COVID-19

March 18, 2020

In response to the rapidly evolving threat of the COVID-19 pandemic, the Government of Canada has focused on creating a plan of action to minimize the potentially devastating health, economic, and social impact of this crisis. In recent days, the federal government has announced multiple measures intended to protect the health and safety of Canadians and safeguard Canadian workers and businesses from financial harm.

In this Alert, we will focus on the financial measures announced by the government with the purpose of protecting Canada's economy and its labour force. These are presented below in chronological order, starting with the most recent:

April 28, 2020

The Canadian government continues to announce updates in their support of businesses during this time of COVID-19. Visit BDO’s COVID-19 Hub page on Tax Implications as well as the following Tax Alerts for the latest updates on government incentives and Tax planning ideas:

March 18, 2020 — $82 billion economic stimulus package announced

On March 18th the Prime Minister, the Minister of Finance and the Governor of the Bank of Canada announced a set of economic measures to help stabilize the economy during this challenging period. These measures—delivered as part of the Government of Canada COVID-19 Economic Response Plan—will provide up to $27 billion in direct support to Canadian workers and businesses, along with approximately $55 billion of support through tax deferrals.

As part of these measures, the government announced the extension of tax filing deadlines and the deferral of tax payments. Details of these changes are contained in our accompanying Tax Alert, Federal and Quebec governments extend income tax filing and payment deadlines.

New Emergency Care Benefit (ECB) introduced

A new ECB will provide up to $900 every two weeks for up to 15 weeks. The ECB will be administered through the Canada Revenue Agency (CRA) and will provide income support to people who do not otherwise quality for Employment Insurance (EI):

  • Workers, including self-employed individuals, who are either quarantined or sick with COVID-19;
  • Workers who are taking care of a family member who is sick with COVID-19.
  • Parents with children who require care due to school closures and are unable to earn employment income.

Applications for the ECB will be available in April 2020 and will be accessible online using the CRA MyAccount secure portal, My Service Canada Account, or by calling a toll-free number equipped with an automated application process.

New Emergency Support Benefit (ESB) announced

A new ESB will provide support to workers who are not eligible for EI and who lose their jobs or face reduced hours as a result of COVID-19. Implementation is expected in early April.

Requirement to provide medical certificate to access EI waived

The requirement to provide a medical certificate to access EI sickness benefits will be waived for Canadians without paid sick leave and who are sick, quarantined, or forced to stay home to care for children.

Income support for individuals who need it most

A one-time special payment will be made to qualifying individuals by early May through the Goods and Services Tax Credit (GSTC). This will double the maximum annual GSTC payment amounts for the 2019-20 benefit year. This means that the average boost to income for those benefitting from this measure will be close to $400 for single individuals and close to $600 for couples.

The government is also proposing to increase the maximum annual Canada Child Benefit (CCB) payment amounts to qualifying families by an extra $300 per child as part of their May payment. This measure will apply only for the 2019-20 benefit year.

The government is proposing the following additional measures to groups who may be vulnerable:

  • Reducing required minimum withdrawals from registered retirement income funds (RRIFs) by 25% for 2020. This will provide flexibility to seniors that are concerned that they may be required to liquidate their RRIF assets to meet minimum withdrawal requirements. Similar rules would apply to individuals receiving variable benefit payments under a defined contribution registered pension plan.
  • Placing a six-month interest-free moratorium on the repayment of Canada Student Loans for all individuals currently in the process of repaying these loans.
  • Providing $305 million for a new distinctions-based Indigenous Community Support Fund.
  • Providing the Reaching Home initiative with $157.5 million to support those experiencing homelessness.
  • Supporting women and children fleeing violence by providing up to $50 million to women's shelters and sexual assault centres, including facilities in Indigenous communities.

Role of financial institutions

Canadian banks have made a commitment to work with customers to provide flexible solutions, on a case-by-case basis, for managing through hardships caused by recent developments. This may include situations such as pay disruption, childcare disruption, or illness. Canada's large banks have confirmed that this support will include up to a six-month payment deferral for mortgages, and the opportunity for relief on other credit products.

Mortgage payment deferral allowed

The government, through the Canada Mortgage and Housing Corporation (CMHC), is providing increased flexibility for homeowners facing financial hardship to defer mortgage payments on homeowner CMHC-insured mortgage loans. The CMHC will permit lenders to allow payment deferral beginning immediately.

Helping businesses keep their workers

For Canadian controlled private corporations eligible for the small business deduction, as well as non-profit organizations and charities, the government is proposing to provide a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer for eligible employers. Businesses will be able to access this support immediately by reducing their remittances of income tax withheld on their employees' remuneration.

Ensuring Farmers have access to credit

Further to measures announced on March 13th (and detailed below) to increase small and medium-sized businesses access to credit, the government confirmed that near-term credit available to farmers and the agri-food sector will be increased through Farm Credit Canada.

Supporting financial market liquidity

On March 16th, the government announced the launch of an Insured Mortgage Purchase Program (IMPP). This program is designed to provide long-term stable funding to banks and mortgage lenders, to help facilitate continued lending to Canadian borrowers, and to add liquidity to Canada's mortgage market. Specifically, the government will purchase up to $50 billion of insured mortgage pools through the CMHC.

The Bank of Canada (BoC) has further announced that it will adjust its market liquidity operations to maintain market functioning and credit availability. The BoC also stated that it will broaden eligible collateral for its term repo facility to include the full range of collateral eligible under the Standing Liquidity Facility, with the exception of the non-mortgage loan portfolio.

As a final measure, the BoC stated that it will be ready, if necessary, to provide support to the Canada Mortgage Bond (CMB) market, including purchases of CMBs in the secondary market.

Supporting Canadian business through the Canada Account

The Canada Account, which is administered by Export Development Canada (EDC), is used by the government to support export transactions deemed to be in the national interest during challenging times. In order to support businesses, the minister of finance will now be able to determine the limit of the Canada Account, allowing the government to begin providing additional support to Canadian companies through loans, guarantees, or insurance policies.

March 13, 2020 – Economic stimulus measures announced

$10 billion business credit facility program

On March 13th, Finance Minister Bill Morneau announced that a $10 billion credit facility will be established to lend money to businesses coping with COVID-19. The money will go to the Business Development Bank of Canada and EDC who will help businesses access this additional credit. He indicated that most of the money will be directed to small and medium-sized enterprises.

Bank of Canada cuts interest rates

The BoC cut the overnight rate target by half a percentage point to 0.75% in an effort to stimulate the economy. This unscheduled rate decision followed a scheduled rate decision on March 4 when the BoC cut its key interest rate by half a percentage point.

Office of the Superintendent of Financial Institutions (OSFI) eases capital requirements

The OSFI reduced the Domestic Stability Buffer (DSB) that applies to domestically systemically important banks. The DSB is expressed in terms of risk weighted assets. With the announcement, the DSB is reduced to 1%, from the 2.25% that was to take effect on April 30. According to the regulator, the DSB will not increase for at least 18 months. This reduction in the minimum capital standard that the country's largest banks have to follow will support an increase in lending capacity of at least $300 billion.

OSFI will also suspend the introduction of the new benchmark rate for the minimum qualifying rate for insured mortgages until further notice.

March 11, 2020 — $1 billion package announced

On March 11th, the government announced a $1 billion package to assist Canadians with the COVID-19 outbreak. Significant components of the $1 billion package are as follows:

  • $500 million – for provinces and territories to fund critical health care system needs
  • $275 million – for additional research, such as vaccine development
  • $100 million – for additional public health response, including support for Indigenous communities and education efforts (this is in addition to an initial $50 million for immediate public health response announced earlier)
  • $50 million – for the Public Health Agency of Canada's COVID-19 communications and public education efforts
  • $50 million – for medical protective equipment
  • $50 million – to support the World Health Organization and other international organizations

One-week waiting period for EI waived

As part of the $1 billion package, the government announced that the one-week waiting period for EI would be waived to assist individuals and businesses affected by COVID-19.

Work-sharing program

The government announced enhancements to the work-sharing program to help employers who are experiencing a downturn in business due to COVID-19, and their workers. The key criteria to apply include:

  • Demonstrate a recent decrease in business of 10%;
  • Demonstrate that the work shortage is temporary and beyond your control;
  • Submit and implement a recovery plan