Managing Cash Holdings During the Covid-19 Lockdown

Canada is now into its 4th week of lockdown due to the Covid-19 pandemic and Vancouver small businesses are suffering as a result.  Even businesses that are marginally impacted are suffering as well due to lack of staffing, delayed delivery, having to adapt to working remotely, etc.

Right now, the uncertainty is high.  We are not sure at all how many more weeks if not months the lockdown will continue.  Even if the government ease on the lockdown, how long will it take for the economic engine to start firing again.

Covid-19 Tax Advice – Hold on To Your Cash!

The most important business decision right now is to hang onto as much cash as possible.  We need cash for the essentials.  We need cash to make sure we can put enough food on the table for our family and loved ones.  We need cash to ensure that our employees, who are such an integral part of our success are taken care of during this crisis and will return to work when the economic engine is running again. 

Credit is abundance until too many of us need it.  This is the problem now.  Bank of Canada lowered its interest rate which we expect would make credit even cheaper.   But risk is now elevated for the lending banks and this will be reflected in the interest charged and the availability of credit. 

The priority now is to pay only the absolute essentials. 

CRA Allow Businesses To Defer Income Tax and GST Payments During Covid-19

CRA has given us the green light to hold onto our cash by letting us defer income tax and GST payments.  Even if balance is owing from prior years where interest is accruing, CRA interest rate is approximately 6% per annum.  That’s not bad given the big picture. Interest paid to the CRA is not tax deductible.

Credit card companies have lowered the interest rate charged on unpaid balance due.  I am reading that the rate is around 10% and 11% per annum during the pandemic crisis.  If the credit card is used for business purpose, the interest paid will be tax deductible. 

There are the large monthly payments – mortgage and rent.  Banks are offering mortgage deferrals. 

Note that many business and individual chequing accounts have been provided an overdraft protection or an unsecured line of credit before this pandemic began.  The interest rate on these facilities are anywhere from 4% to 7% per annum.  This is an inexpensive source of funding that is already available.  The interest charges would be tax deductible if the funds are being used to generate income from business or investments. 

CEBA Coming Soon For Businesses

Finally, there is the Canada Economic Bank Account (“CEBA”) coming soon.  CEBA will provide qualifying businesses with access to a loan up to $ 40K to help with your pressing needs.   The main qualifier is that your business payroll for 2019 needs to be between 50K to 1Mil.  (Whether this includes payroll to the shareholder is not addressed at this time.)  The loan is interest free until Dec 31, 2022.  No minimum monthly principal payments until Dec 31, 2022.  Up to $ 10K of the loan will be forgiven if fully paid back by Dec 31, 2022. 

Hopefully, CEBA will allow many small business owners to sleep well and stay safe the next few weeks. 

We Are Open During Covid-19 Contact Us For More Tax Questions

Our office is open for phone discussion during the social distancing period.  Please email the office with your question and a cell number where you can be reached.