We included the $20k in T2 in 2020 (GIFI 8242)
It appears that the owners will not be able to repay the $40k therefore owe $60k plus interest.
If we confirm that no portion will be forgiven, can we reduce income by the amount included in 2020 or do we have to wait until repayment.
I am seeing a lot of articles stating that we can only reduce income by the amount repaid in the taxation year in which reimbursement was made.
Can you post references? I don’t think it would be related to a “reimbursement:”
As I understand it (per ITA 12(1)(x)) in the year the amount becomes “payable” (due to it not being “forgiven”) the taxpayer can claim a DEDUCTION for that amount, which was previously recorded in income.
I am not basing this off ITA references… simply google research.
Taxtips.ca :
Taxation of Forgivable Loans
The CECRA and the forgivable portion of CEBA are taxable when received (ITA s. 12(1)(x)), but if and when repaid, are deductible when repaid (ITA s. 20(1)(hh)). This is confirmed by Canada Revenue Agency (CRA) in Technical Interpretation 2020-0861461E5 Tax Treatment of Loan Forgiveness under CEBA.
This means that the 25% (up to $10,000) forgivable portion of CEBA and 100% of CECRA will be taxable in 2020. If any of the forgivable portion is repaid, because requirements were not met, then this can be deducted in the taxation year when the amount is repaid.
Video Tax News - see Tax Treatment of Loan Forgiveness under CEBA
No Forgiveness: Deduction Upon Repayment
The forgivable portion of the loan will not be forgiven if the taxpayer does not repay the loan by December 31, 2022. When the taxpayer eventually repays the forgivable portion of the loan after this date, they can offset the prior income inclusion by a deduction under paragraph 20(1)(hh) of the ITA in the year of repayment. The deduction is allowed if the amount was repaid in the year pursuant to a legal obligation to repay an amount that was included in income by virtue of paragraph 12(1)(x) or that reduced the amount of an expense under subsection 12(2.2). For example, say that a taxpayer borrowed the maximum $60,000 CEBA loan in 2020, so the $20,000 forgivable portion was included in income for 2020. If the taxpayer repays the entire loan in 2024, no amount of the loan is forgiven due to the timing of the repayment. However, the taxpayer would deduct $20,000 under paragraph 20(1)(hh) in 2024.
The timing of the paragraph 20(1)(hh) deduction can be complicated if the loan is not entirely repaid in a single year. For example, if a taxpayer borrowed $60,000 in 2020, repaid $40,000 in 2024, and repaid $20,000 in 2025: should the deduction for $20,000 be made in 2024, 2025, or should it be prorated between the two years? According to the CRA’s comments in document 2020-0862931C6, the timing and amount of the deduction depend on the intent of the parties.
Where the intent of the parties is that any amount reimbursed by the taxpayer will be applied first in repayment of the portion of the loan that was initially forgivable, the taxpayer could claim a deduction under paragraph 20(1)(hh) with respect to the amount reimbursed in the taxation year in which the reimbursement is made, up to the amount included in its income pursuant to paragraph 12(1)(x). However, if the intent of the parties is unclear in this regard, the CRA stated that the deduction under paragraph 20(1)(hh) should be prorated as follows:
Deduction under 20(1)(hh) = amount reimbursed in the taxation year x (portion of the loan that was initially forgivable Ă· outstanding balance of the loan on January 1, 2023)
When the loan is fully reimbursed, the total of all prorated deductions under paragraph 20(1)(hh) in respect of the loan will equal the income initially included under paragraph 12(1)(x).
Thanks for sharing.
Whoever wrote that article is using the word “reimburse/reimbursed” incorrectly (should use “repay/repaid” as in the earlier paragraphs). But, it does identify the 20(1)(hh) requirement, which I was not aware of. So, it sounds like, not only can the taxpayer NOT claim a deduction immediately (i.e. Jan 19, 2024), they might not even be able to claim the deduction until the LAST dollar of the loan has been repaid… 
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Thank you for responding. Its reassuring to know that others are interpreting the rules in the same manner.
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