Forgivable Portion of CEBA and Income Inclusion

Many businesses in Canada have utilized the Canada Emergency Business Account (CEBA). Initially, the program provided $40,000, of which $10,000 (or 1/4) is forgivable if specific conditions are satisfied. Subsequently, the program was expanded to offer an extra $60,000, with an additional $10,000 being forgivable. 

It’s essential to note that the forgivable portion of the CEBA loans should be incorporated into the income for the year in which the funds were obtained. The Income Tax Act (ITA) stipulates under section 12(1)(x) that these amounts should be included in the income when the assistance is received. Moreover, the ITA, under section 20(1)(hh), allows for a deduction if these amounts are repaid in the future. 

All businesses that have availed of the CEBA funding should incorporate these amounts in their respective tax years. As the funds are utilized to settle non-deferrable expenses, section 12(2.2) of the ITA also offers an alternative to decrease the amount of expenses paid instead of including the amounts in income. Regardless of whether businesses opt to include the amounts in income or reduce expenses, the net impact on taxable income remains unchanged.