CEBA Loan Extension: There’s a Devil in the Details

Evelyn Jacks

Business owners who received the Canada Emergency Business Account (CEBA) loan and have not yet repaid it will likely be aware of a small extension in the required repayment date.  The loan was due on December 31, 2023 in order to preserve the forgiveness of a portion of the loan. The date is now January 18 or for those who are refinancing to make the payment, March 28.  However, there is a devil in the details to pay special attention to:  the December 31, 2023 deadline still applies for some. For others a missed interest payment could throw the forgivable portions offside.

Those who repay on time.   Businesses were originally able to qualify for a $40,000 loan in March of 2020 with 25% of that forgivable if $30,000 was repaid.  Later that year, an additional $20,000 was made available, with 50% of that forgivable, if $10,000 was repaid.  In total, this was a $60,000 loan with $40,000 repayable and $20,000 forgivable.  That’s a very good deal if you repay on time.  The original date of repayment was December 31, 2022.  It was extended to December 31, 2023 and now to January 18, 2024.

Those who don’t pay by January 18, 2024.  These businesses may wish to arrange for financing and if that’s the case, as long as the loan is repaid by March 28, 2024 the forgivable portion does not have to be repaid.  However, this is where details matter:  the interest accrued from January 18 to March 28 must be repaid as well, for the forgiveness to occur. 

If in good standing it may be possible to arrange financing to repay the CEBA and to take advantage of the January 18 deadline.   However, the financial institution may not be able to draw up the paperwork in time.  The government has given financial institutions until March 28, 2024 to work with clients to refinance the non-forgivable portions.   If the loan remains outstanding on January 19, 2024, it will convert to a non-amortizing term loan with full repayment required by December 31, 2026.

There will be no interest charged on the loan until January 18, 2024. But starting on January 19, 2024 to March 28, 2024, 5% will be charged.  That interest must be fully paid to the bank together with the non-refundable portion to the government to qualify for the forgiveness.   

CRA has provided these examples:

Scenario 1:  Business took CEBA loan of $40,000 or less and repays the balance on or before January 18, 2024.  Forgiveness is 25% of the amount borrowed up to $10,000.

• $40,000 borrowed; $30,000 repaid, forgiven $10,000
• $40,000 borrowed; $25,000 repaid; forgiven $0
• $20,000 borrowed; $15,000 repaid; forgiven $5000

Scenario 2:  CEBA loan was more than $40,000 and up to $60,000

• CEBA loan repaid by January 18, 2024:forgiveness is 25% on first $40,000 and 50% of amounts over $40,000 up to $60,000 for a maximum of $20,000
• CEBA loan $60,000; repaid by January 18 $40,000, forgiven $20,000
• CEBA loan $60,000; repaid by January 18 $35,000, forgiven $0
• CEBA loan $50,000; repaid by January 18 $35,000, forgiven $15,000

If not in good standing, December 31, 2023 still matters.  Not all business owners will qualify for the January 18th repayment extension.  Those who are not in good standing with their financial institutions must repay the outstanding CEBA loan in full by December 31, 2023.  If they do not, the forgiven portion is forfeited.   That means a $40,000 loan has turned into a non-amortizing $60,000 loan that attracts interest at 5% and must be repaid by December 31, 2026.  It is feared that this may push some businesses into bankruptcy.

Make a Difference.  Year end tax planning with business owners must include a discussion of the CEBA loan repayment options.  The vast majority of them have not repaid the loans yet.  If financing is not available options could include using equity in a principal residence, which would make the interest deductible.

Additional Education Resources:  Two important professional development events:  the Virtual CE Summits:  Year End Tax Planning on November 1 and the January 17 Advanced T1 Tax Update.