One of our clients received a CEBA loan of $40,000, and it was later discovered that they are not eligible for the $10,000 forgiveness. The forgivable portion was reported as income in the year the loan was received. The client has now repaid the full $40,000 before the deadline.
Is it possible to claim a deduction under subsection 20(1)(hh) for the repayment? If so, how should this be included in the T2 corporate tax return? Also, what GIFI code should be used on Schedule 125 for this deduction?
Any guidance or leads would be greatly appreciated!
What your supposed to do is an adjustment, reversing the income for that year. This will, of course, reduce taxes payable in that year and change the balance sheet accordingly, so there may be adjustments in following years, as well.
You are correct @Sai
Contrary to @johanus, the forgivable portion was required to be reported in income in the year received - per ITA 12(1)(x). When the forgivable portion is actually forgiven (i.e. Jan 12, 2024), there is no tax effect. If the forgiveness is revoked (i.e. must be repaid), the taxpayer must claim the deduction in the year that it is repaid - per ITA 20(1)(hh).
There are other threads on this forum that discuss that very issue.
How should this be included in the T2 corporate tax return? Also, what GIFI code should be used on Schedule 125 for this deduction? Looking for your valuable opinion.