COVID-19 Federal Support Programs

During this unprecedented experience in our economy, the Federal Government (as with all/most free nation Governments) is providing help to those who need it. Though I would not classify it as slow, I would define it as unclear, foggy, blurry, changing, and confusing. Up until April 8th, I decided not to produce anything describing what was being offered because it was vague, arbitrary, and shifting. But finally, some clarity came out in written form. Here is a summary of what you may be able to take advantage of. However, I’d like to state that I summarized it as it applies to Independent Operators only.

TRUCKING is considered an essential business and therefore is exempt from virtually all mandatory quarantine situations. Using this fact as the basis for negotiating government programs, it is and will always be subject to at least some form of interpretation. I won’t guarantee the application of ANY benefit requested… but it doesn’t hurt to ask or apply.

THERE ARE FOUR PROGRAMS

1. Temporary Wage Subsidy

2. Emergency Wage Subsidy

3. CERB or Canada Emergency Relief Benefit

4. CEBA or Canadian Emergency Business Account

“WARNING”

Abuse of these programs can result in fines or penalties of up to 225% of any benefits received. At the time of this article, abuse has been defined and advertised as anyone who has claimed both Program 2: (Emergency Wage Subsidy) and Program 3: (Canada Emergency Relief Benefit). We cannot determine if the rules will change further. Many people think that dealing with the Canada Revenue Agency (CRA) is an absolute science. At times IT IS NOT, especially now with these programs. There may well be unique assumptions applied to it BUT, we also trust it will have some form of consistency.

1. Temporary Wage Subsidy (10% of wages).
I believe that most of all Independent Operators should be able to qualify for this program; all you need is an active payroll account as of March 18, 2020.

Simply put… it’s 10% of last month’s gross wages (our firm includes non- taxable benefits because of how WE read the allowances). It does say to include them. HOWEVER… this may be subject to interpretation. This 10% total is calculated as a taxable wage subsidy (maximum of $1,375 per employee).

Let’s use an illustration: $1,000 salary plus $2,000 non-taxable benefits at 10% is $300. This subsidy reduces your next month source deductions by $300 for the first of three months. If you have a management bonus before June 18th, 2020 you can include that “gross” into your subsidy calculation as well. So, if you also declare a $4,750 bonus in June you will save $300 in April, $300 in May and $775 in June… or a total of $1,375 (maximum allowable per employee). Remember, the subsidy must be claimed as taxable income.

This application may require a fair bit of additional work (for 3 months and early in 2021). Though our firm is not charging for the work and application, it would be reasonable for any firm to do so. If done properly the operator should still come out ahead several hundred dollars per employee. We are pretty sure this subsidy calculation is accurate but… so far… the rules keep changing too much for me to be 100% confident.

2. The 75% Canada Emergency Wage Subsidy (CEWS)
This is very different from the Temporary Wage Subsidy. Even though you can claim both simultaneously, the Temporary (10%) will be deducted from the Emergency (CEWS 75%) so the Temporary will become irrelevant.

In my opinion, most/many operators will NOT fully qualify for the CEWS. Only those who have significant drop in revenue (30%+). Most of our clients have not experienced nearly that much drop… at least so far. Additionally, the amount of documentation and defence required to qualify is substantial.

For example, you must provide documented evidence that your revenue dropped 30% because of COVID-19 as well as documenting your pre-virus payroll as the 100% standard.

Here-in lies some of the problems; as an essential industry, finding a drop of 30% will need to be defended consistently, month over month using the same method of calculation. So, if your income drops in one period but returns the next… it may weaken your argument that COVID-19 even caused it.

Without a doubt, some Operators have lost big time, such as auto parts haulers or delivery drivers to restaurants. But most long-distance operators, in my opinion, may have difficulty justifying their application… especially if YOU supplement your wage while others at your carrier didn’t even drop in revenue. If you can PROVE you are dramatically affected, this may well be an option for you… however… if you have to massage your numbers to make it work, you may be heading down greedy street which may have penalties parked on it.

To apply for this subsidy most accountants will charge extra; I know we do.

The limit of your claim is the lesser of 75% of pre-crisis wages or $847 per week ($3,388 per month or $10,164 over 3 months) provided the revenue remains depressed. Remember, it’s the responsibility of the employer to defend their drop in income period over period. There are various formulas for this but the bottom line is, if your income returns during the three month period you will lose your applicable subsidy and may even be required to repay any previous subsidy if they deem it non-COVID-19 related. Due to this, I suggest making sure you apply for both the Temporary and Emergency if you’re going to try for the Emergency. That way, if the Emergency is rejected, you always have the Temporary.

In THIS program there are also some non-arm’s length restrictions (since the owners are usually the only employees, the relationship is classified as non-arm’s length). Therefore, the interpretation of qualifying or not could be subjective. The program is designed to keep employees being paid… not necessarily working. Sending someone home claiming it’s because of COVID-19 and paying them must all be justified… every month… in an essential industry… as non-arm’s length. We will probably see different regions in Canada apply these restrictions differently.

The subsidy only applies to wages… nothing else. Since most operators need to make their truck payments by driving… they usually try and find the work. The application must be applied for through the My Business Account portal and some of the application process has not even been developed at the time of this writing.

3. The Canada Emergency Relief Benefit

There is another alternative some operators have chosen to use. It’s an all or nothing approach. Basically, firing (laying off) their spouse (or even themselves) and collecting the Canada Emergency Relief Benefit.

The CERB provides up to $500 per week ($2000 month) for those who get laid off due to the pandemic. By far it is the easiest of all benefits to collect with virtually no documentation other than an on-line application. However, someone must STOP working. Also, due to the non-arm’s length status of “firing” a shareholder or director (or spouse)… it may get people in trouble when CRA audits the application for compliance. It’s easy… but actions MAY need to be defended.

4. CEBA or Canadian Emergency Business Account

Basically, this benefit is an interest-free $40,000 loan (with some qualifications and restrictions). If qualified, up to 25% of it can be forgiven. That means you may only have to pay back $30,000 of the $40,000. Not too bad if everything goes according to plan. Different lending institutions may require slightly different terms so talk to your banker.

QUALIFICATIONS: You must have a payroll that grossed $20,000 or more in 2019 (website said $50,000 but the Prime Minister just announced a reduction that has not been updated as of the time of this writing). The vast majority of all Operators should be able to qualify for this program. It is designed to pay for general expenses of your business during the COVID-19 crisis. Two general things to understand: First it is interest-free UNTIL December 31, 2022 (18+ months). Second, it may NOT be payment-free for that entire time. You must follow the rules outlined by your financial institution. For example, if you have not paid 75% of the loan back on or before December 31, 2022, you will not have the balance “forgiven”. This means, you must time your payments according to THEIR schedule to maximize your “debt forgiveness”. This is a loan and most institutions will probably work to extend the loan beyond the December 31, 2022 deadline… for a fee of course. Find out from your bank what terms they are providing.

Personally, I believe, this loan can be a trap. It must go to pay operating expenses, yet it must be paid back from future operating income. Financial success can be defined as debt-free living, not playing with easy credit. My suggestion is MAKE SURE you have the FULL $40,000 available to repay before December 31st, 2022… or don’t do it.

These four programs all have advantages, disadvantages, qualifications, restrictions and even deadlines. Check with your accountant on which program he/she may think best fits your needs. You can also go to our website and watch a video on these options. Unusual times call for unusual measures.

If you have questions or concerns, please feel free to email me.

About the Author:
Robert D. Scheper is a leading Accountant and Consultant to the Lease/Owner operator industry in Canada. His first book in the Making Your Miles Count series “taxes, taxes, taxes” was released in 2007. His firm exclusively serves Lease/Owner Operators across Canada. His second book “Choosing a Trucking company” is the most in-depth analysis of the operator industry available today. He has a Master degree (MBA) in financial management and has been serving the industry since he and his wife came off the road in 1993. His dedication, commitment and strong opinions can be read and heard in many articles and seminars.

You can find him and his books at www.makingyourmilescount.com or 1-877-987-9787. You can also e-mail him at robert@thrconsulting.ca.