Extraordinary times call for extraordinary measures. The federal government’s latest response to the COVID-19 pandemic, a breathtaking $82 billion stimulus package announced today, underscored the severity of the current—and coming wave—of economic upheaval facing Canadian businesses in the weeks and months ahead. Put simply, all prior fiscal projections are now irrelevant. Business performance estimates must be immediately revised. The crisis stemming from the coronavirus outbreak is already having a transformative impact on our health, economy and way of life—and we’re still in the early stages.
As expected, Prime Minister Justin Trudeau announced a sweeping plan to maintain financial market liquidity, backstop ailing businesses and prevent the Canadian economy from grinding to a halt. The measures—$55 billion in tax deferrals and $27 billion in direct aid to businesses and workers—will provide welcome relief, but much more will likely be needed in the near to medium term if even modestly optimistic predictions of the virus’ spread play out.
The package includes the following measures for business:
- A deferral of outstanding federal income tax payments, due between today and before September 2020, until August 31, 2020. Both tax balances and installments owing are covered by the deferral, while no interest or penalties will be assessed on balances owing during this time
- A temporary wage subsidy for up to three months for Canadian-controlled private corporations eligible for the small business deduction, as well as non-profit organizations and charities. As the Department of Finance explains, “… 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. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration.”
- A moratorium on post-assessment GST/HST or Income Tax audits by the Canada Revenue Agency for the next four weeks, while the agency will also temporarily suspend ongoing audit activities for most businesses
- Changes to the Export Development Canada-administered Canada Account to provide additional support to Canadian exporters through loans, guarantees or insurance policies
- An increase in credit available to farmers and the agricultural sector through Farm Credit Canada
The announcement comes on the heels of a previous package of measures to support struggling businesses announced only five days earlier—seemingly a lifetime ago—which included a new $10 billion credit program targeted mainly towards small and medium-sized organizations directly impacted by the COVID-19 crisis, to be administered by the Business Development Bank of Canada and Export Development Canada. That package also reduced the Domestic Stability Buffer to 1% from the previous 2.25% to boost the major banks’ lending capacity by at least $300 billion. In another move to shore up market liquidity, the government launched the Insured Mortgage Purchase Program to purchase up to $50 billion of insured mortgage pools through the Canada Mortgage and Housing Corporation (CMHC).
At the same time, the Bank of Canada cut its overnight lending rate by a half percentage point to 0.75% in an attempt to slow the economic freefall.
For individual Canadians, Ottawa’s stimulus measures announced today were no less comprehensive in their scope. They include:
- Temporary income support for Canadians without paid sick leave who are sick, quarantined or required to stay home to care for children
- A waiver of the one-week waiting period and medical certificate requirements to claim Employment Insurance sickness benefits
- A new Emergency Care Benefit that will provide up to $900 bi-weekly— for up to 15 weeks—for workers (including self-employed individuals) who are quarantined or ill with COVID-19, but who don’t qualify for EI sickness benefits. Individuals that fail to qualify for EI sickness benefits, but are caring for ill family members or looking after children due to school closures and are therefore unable to earn income, also qualify for the program
- Support for low-income earners in the form of a one-time doubling of the Goods and Services Tax credit for the 2019-20 benefit year, equating to nearly $600 for couples and $400 for single individuals
- An increase in Canada Child Benefit payments by $300 per child for the 2019-20 benefit year, or approximately $550 on average for families
- $305 million for a new Indigenous Community Support Fund
- An interest-free moratorium on Canada Student Loan repayments
- A 25% reduction in minimum withdrawals from Registered Retirement Income Funds for 2020
- $50 million in support for women’s shelters and sexual assault centres
- The introduction of an Emergency Support Benefit totalling up to $5 billion for workers who lose their jobs or face reduced hours due to the COVID-19 outbreak
- An expansion of the EI Work Sharing Program for workers who agree to reduce their normal working hours “as a result of developments beyond the control of their employers.” The eligibility of these agreements will be extended to 76 weeks
- A deferral until June 1, 2020, of the 2019 filing due date for individual tax returns. For trusts with a tax year ending on December 31, 2019, the return filing date will be May 1, 2020. Canadians will be allowed to defer income tax payments owing until after August 31, 2020, including installments, without interest or penalties
The major banks have also indicated a willingness to work with customers to provide flexibility on mortgage and loan repayment schedules on a case-by-case basis, while the CMHC is providing flexibility for homeowners to defer mortgage payments on insured mortgage loans.
There is little doubt that yesterday’s massive stimulus package will be followed by additional measures if, as is expected, the COVID-19 crisis continues to escalate across the country. The closure of the Canada-U.S. border to all but essential supply-chain trade sent stock exchanges plummeting, and fuelled concern among many Canadian CEOs for the viability of their organizations. The federal and provincial governments will be forced to do much more. Worse, no end to the crisis is in sight.
Already soaring debt and deficits at the federal and provincial level will reach previously unfathomable heights by the time this unprecedented economic tsunami eventually settles. But the government’s balance sheet is the least of our worries at this time. Right now the priority must be saving lives. On behalf of the entire KRP team, we encourage you to do what’s necessary to keep your family safe, including following government social distancing guidelines.
To our clients who are attempting to understand the magnitude of this disruption and what it means for their businesses, rest assured we’ll be with you every step of the way. In the coming days and weeks, we’ll be sharing regular updates and bulletins such as this one, along with insights and expertise to help you make the strategic decisions necessary to stabilize your bottom line, ensure business continuity, restore full operations and eventually emerge from this crisis in a position to resume growth.
The road ahead is highly uncertain—when we can enter that last phase is anyone’s guess. Until then, please reach out to any member of our partnership group if you have questions or require assistance or advice.
Armando Iannuzzi, Co-Managing Partner